Reuters and Vodafone were on offer as British stocks erased a fortnight of gains within a single session. Better-than-expected earnings from Royal Bank of Scotland provided one of the day's few positive features.
The FTSE 100 index closed lower by 84.4 to 5791.5, retreating from its best closing level in more than four years. All the broader indices were lower on above-average volume of more than 4 billion shares, which reflected a busy day on the regulatory newswire.
Stocks also tumbed across the Atlantic, hurt by a fall in consumer confidence, a slowing housing market and a weaker-than-expected regional manufacturing survey. The Dow Jones Industrial Average sank 91 to 11,006.
Google shares dropped as much as 14 per cent after the search engine's chief financial officer reportedly told investors at a Merrill Lynch conference that growth would have to come from segments other than its search business. (Google shares narrowed the loss after European markets closed.)
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Back in London, Reuters slid 18p to 380p as Credit Suisse cut its rating to "neutral" from "outperform". That follows Reuters last week guiding for 2006 sales growth that was at the low end of market expectations.
"We believe that visibility on revenue growth recovery is decreasing ... while cost control seems to be loosening despite the announcement of an additional restructuring plan in July 2005," the broker told clients.
Credit Suisse said it would remain cautious on Reuters "in the absence of strong medium term guidance, and until material upgrades become visible". It set a share-price target of 380p, at a small premium to the group's sector peers.
Track Reuters shares here.
Vodafone remained on offer following yesterday's warning of tough trade -- its third in four months. Shares closed at a new three-year low, down 4.75p to 109p. Some analysts who spoke to the company yesterday reckon it is yet out of the woods.
"By cutting its own medium (to) long-term forecasts, Vodafone is underlining the structural nature of price deflation in this industry," said JP Morgan's team, which downgraded the stock to "underweight" a week ago. It stuck by that rating today, on a target price reduced to 108p.
JP Morgan was most concerned that Vodafone's rebased forecasts did not alter assumptions for pricing and user minutes.
Vodafone currently assumes that rival technologies such as voice over internet protocol (VoIP) will have no effect on turnover. However, JP Morgan pointed to evidence that VoIP has already affected mobile user minutes in France. Moreover, it argued that Vodafone is sticking with premium pricing in Germany even as that model is "proving increasingly untenable in the UK".
The broker continued: "Over coming days there will likely be a tendency to try to pick the floor in the share price, in our view. We would be cautious on this. Price reductions accumulate over time. ... Pricing has a long way to fall before customers begin to perceive wireless as 'cheap' and, in the meantime, wireline VoIP should lower the price comparison further."
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Among the resources stocks, India-based copper miner Vedanta Resources lost 30.5p to 985.5p. That followed the Indian government cutting the import tariff on metals from 10 per cent to 7.5 per cent, bringing them in line with the rest of the region.
Vedanta will be forced to lower its prices to compete in the domestic market. Citigroup saw the move as taking about 2 per cent off its earnings expectations.
The large-cap miners followed the weak market trend, with Rio Tinto slipping 83p to £26.80 and BHP Billiton down 17.5p to 960p ahead of a dividend strip tomorrow.
Utility stocks, yesterday's top performers on merger speculation, were today's weakest sector across Europe as trading concerns were revived. That followed Spain's Union Fenosa posting earnings that were below expectations in all its divisions except gas supply.
International Power was off 10p to 285.75p and Severn Trent lost 28p to £11.54.
Follow today's trading by industry sector here.
Royal Bank of Scotland led a nine-strong list of blue-chip risers, up 50p to £19.09. The lender accompanied news of a 16 per cent increase in annual profits with plans to buy back up to £1 billion in shares this year.
The UK’s No 2 bank said profit before tax, charges and one-off costs for the year to end December came in at £8.25 billion, slightly ahead of the £8.1 billion consensus of analysts' forecasts. In addition to the £1 billion buyback, RBS also raised its dividend by 25 per cent to 72.5p.
"We believe this should be taken positively as signalling management's focus on improving returns to shareholders and also indicates a positive outlook," said Goldman Sachs, which repeated an "outperform" rating. "Having lagged peers share price performance over the last 12 months, we believe that this provides the last piece in the jigsaw to rectify this underperformance."
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RBS's strong profits were in contrast to Alliance & Leicester, which yesterday showed profits down 7.4 per cent, margins weakening and arrears rising.
Shares in the mortgage lender sank a further 55p to £10.69 today as bid speculation unwound. The theory went that a share repurchase programme, also announced yesterday, will reduce the excess capital on the company's balance sheet, thereby reducing a key attraction for any predator.
"As time goes on, the mathematics supporting a bid becomes less persuasive," said Credit Suisse, which repeated "underperform" advice. "We still think A&L is an attractive potential bid target, but with nothing seemingly on the cards at the moment."
Track Alliance & Leicester shares here.
PartyGaming drifted 3.25p to 127.25p after it posted full-year underlying earnings of $584 million, up 49 per cent year-on-year and better than analysts had forecast. News on current trading was upbeat, but was overshadowed by the resignation of Richard Segal, the group's chief executive, after he refused a permanent move to Gibraltar.
"This is clearly not ideal but a strong underlying management structure is now in place and day-to-day management of the business will be unaffected," said Dresdner Kleinwort, which raised forecasts in reaction to the results.
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British American Tobacco firmed 31p to £13.59 after its posed an 11 per cent increase in profit before tax and exceptionals, to £2.79 billion. Earnings per share rose 17 per cent to 89.3p, beating consensus forecasts by about 3 per cent.
UBS repeated "buy" advice on BAT, saying the company stands apart from the rest of the tobacco sector because three-quarters of its sales come from emerging markets such as Africa, Asia and Latin America. "This was the main driver of accelerated sales and (earnings) growth in 2005 and this is likely to be repeated in 2006 given the ongoing favourable economic conditions," it said.
For detailed information on BAT, click here.
Cable & Wireless confirmed it could axe over half of its UK workforce by the end of the decade in the latest bid to revive its ailing domestic telecoms business. Shares inched lower by 1.75p to 106.75p.
Between 2,000 and 3,000 of the group’s 5,500 domestic jobs could go over the next four to five years, C&W said. The group will also reduce the number of corporate customers it serves, to 3000 from the current total of around 30,000.
Citigroup analysts noted that the focus on large businesses was a revival of the ideas pushed through by Graham Wallace, C&W's chief executive until 2003. Mr Wallace was the architect of C&W's shift from consumer telecoms into corporate information services.
"With five CEOs and as many changes of strategy in the past ten years it is unsurprising that significant elements of this plan look familiar," it told clients.
"The UK business of C&W has been in decline for the past 15 years -- we remain sceptical about the ability of this new management team to reverse its fortunes and even more sceptical that the reinvention can be executed in a smooth and investor friendly way. The balance of risk appears biased on the downside."
Track C&W shares here.
Restructuring news was taken more positively among the midcaps:
MFI Furniture rose 2.25p to 91.75p after it said it was going to quit selling bathrooms and sofas after poor sales wiped out annual profits -- even though the loss was narrower than the City had feared.
The firm, which recently sold its French Hygena chain and secured an asset-backed £150 million loan facility to help it restructure, said it made a before-tax loss of 600,000 pounds before exceptionals for the year. The restructuring may lead to the loss of up to 370 jobs.
MFI had prepared investors for a loss following a profit warning in October, the fourth in a year. Analysts had forecast a loss of around £4.6 million.
For detailed information on MFI, click here.
Emap firmed 32p to 950.5p after revealing it will sell its French operations and return the cash generated to shareholders. The decision follows a review of the group’s strategic investment priorities.
Emap France -- which specilises in TV listings titles and had a rotten 2005 -- was now trading in line with expectations and continued to be strongly cash generative, the group said. Analysts value the unit at between £300 million and £450 million.
Lehman Brothers called the decision "strategically sensible," but thought Emap would probably be viewed as a distressed seller and may not get a premium price.
"The shares have risen in anticipation of such a transaction and our view is that Emap is now starting to reflect fair value," said Lehman as it cut the stock to "equal weight" from "overweight".
For detailed information on Emap, click here.
Engineer GKN led the FTSE 250 index after it posted a 7 per cent increase in annual trading profit, helped by its aerospace components unit. Earnings before restructuring and impairment charges rose to £228 million on sales up 5 per cent at £3.65 billion.
GKN said it expected further progress across its businesses in 2006 and announced it would make an immediate contribution of £200 million to its pensions scheme. Shares jjumped 23.25p to 339.75p.
Dresdner Kleinwort, which had forecast profit of £203 million, raised its rating to "add" from "reduce". "
"GKN trades at a 15 per cent sector discount, which appears overly cautious given continued operational delivery," said the German broker. "The company continues to largely offset automotive end-market weakness through internal restructuring (while) aerospace gives the company an attractive end-market exposure"
Track GKN shares here.
The news was less positive for BBA, which lost 30p to 905p after its full-year results missed market expectations and its chief executive stepped down. The aerospace services group, which provides refuelling, cargo handling and the like, also confirmed fears that its nonwoven materials unit will likely be demerged rather than sold.
BBA's clean profit before tax was £108.2 million, about 8 per cent below City expectations, although EPS of 18p matched forecasts because of the release of a tax provision. Roy McGlone, BBA's chief executive, will be replaced by Mike Harper, the former CEO of Kidde.
ABN Amro said it would look to revise current-year profit forecasts lower by about 7 per cent to £122 million, implying no EPS growth this year. Dresdner cut its rating on BBA to "hold" from "add".
For detailed information on BBA, click here.
The company said it generated net fee growth of approximately 13 pct since the start of January. If growth continues at these rates, the full year performance is likely to be towards the top end of current market expectations, Hays added. Shares were up 9.5p to 148p.
For detailed information on Hays, click here.
CSR was the main market's worst performer, down 905p to 905p after it posted results that were below the most optimistic of market expectations and flagged a possible slowdown in growth for the first quarter.
The world's No 1 designer of Bluetooth communications chips revealed fourth-quarter profit before tax up 104 per cent to $38.6 million a year earlier, with revenues up by the same factor to $162.9 million.
However, it said revenues should be $125 million to $135 million over the current three-month period, partly because of disruption caused by the Chinese new year. That was down 22 per cent quarter-on-quarter and disappointing against the City consensus forecast of $139 million.
"These numbers represent a solidly in line performance from CSR," said Merrill Lynch, which kept a "neutral" rating. "After a strong run up in the shares in late 2005, and despite the recent weakness, we think the seasonal guidance for the first quarter is a little disappointing but we expect further strong progress from CSR's Bluetooth business later in 2006."
For detailed information on CSR, click here.
Elixir Petroleum was the sharpest faller among the minnows after drilling on one of its North Sea prospects came up dry. Shares dropped 19.75p to 26.25p, a decline of 43 per cent.
The Jaguar prospect in the northern North Sea failed to find commercial hydrocarbons. Elixir said it will continue drilling and will conduct a wireline logging program to evaluate the hydrocarbon potential of the deeper section.
When Elixir started drilling the Jaguar prospect on January 20, it had estimated the well had the potential to hold "several hundred million barrels" of oil reserves. A month earlier, the company had said it Muness prospect in the North Sea was uncommercial.
On broker watch:
Bridgewell raised Hays to "overweight" from "neutral" and lifted Halma to "neutral" from "underweight".
Altium cut Henderson Group to "sell" from "hold".
Seymour Pierce moved to "sell" from "hold" on MFI.
ABN Amro lifted Alliance & Leicester to "hold" from "sell".
WestLB cut Sage to "hold" from "add".
Panmure Gordon cut BBA to "sell" from "hold".
And Merrill Lynch raised Pilkington to "neutral" from "sell".
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