FTSE 100 movers: Royal Mail and REITs retreat

The FTSE 100 was dragged lower on Thursday by investor's disappointment in Royal Mail and a gloomy note on the real estate sector.

Royal Mail was down over 5% in mid afternoon trading after its third-quarter update revealed revenues for the nine months to 25 December were as flat as a second-class stamp, with increased "business uncertainty" hitting volumes particularly in flyers and business mailings.

Even though the headline numbers were in-line with consensus expectations and full year guidance was reiterated, analyst Mike van Dulken at Accendo Markets said the results "do little to appease concerns about both the long-term decline in UK letter volumes, something worsening via Brexit-inspired business uncertainty, and tough competition within parcels", where there are huge competitive pressures from peers like UK Mail, Fedex, UPS and Amazon's in-house deliveries.

"Parcels remains highly competitive the world over, in some cases intensifying as online shopping volumes climb, encouraging new carriers to fight for share. Current trends mean it’d take a brave soul to offer that 'things can only get better', hence cost efficiencies still such a big focus in order to protect margins."

Although British Land put out an upbeat trading statement of its own, it led a phalanx of large real estate investment trusts (REITs) on the slide thanks, it seemed, to a note from Jefferies that warned the property cycle is suffering from ‘active inertia’ with sellers in pricing denial and deals increasingly falling over.

"When foreign capital flows reverse, property faces a toxic combination of falling rents and rising cap rates and REITs risk NAV deflation and earnings degradation," it said, downgrading FTSE 350 names including Hammerson, Great Portland, Big Yellow and Workspace to 'underperform' and LondonMetric to 'hold' and warning London's market was most at risk as Brexit hastens what was already a mature cycle.

Jefferies said the "valuation dam is expected to breach in 2017", as the shift "from shops to sheds" gains momentum as retailers cannibalise sales between physical space and e-tailing, catching FTSE 100-listed mall owner Intu and British Land in its wider swipes, with both their target prices under water.

Fresnillo was down amid positive US economic data knocking gold and silver prices back from their recent highs and on course for their second consecutive daily decline.

"Silver has taken a battering today following on from last night’s sell-off. Yesterday silver hit a two-month high and looked as if it was set to make further gains after it broke above resistance around $17," said SpreadCo's David Morrison. "But the dollar rally which followed Janet Yellen’s speech last night and Mario Draghi’s press conference earlier today has triggered a burst of profit-taking in silver. This is weighing on Fresnillo."

Risers were led by the rebounding Pearson, up 2.5% in spite of reiterated 'sell' ratings from analysts including those at Goldman Sachs, which cut its price target to 512p, and Liberum, which slashed its PT to 360p.

Liberum said Pearson remained its key ‘sell’ in the media sector, with the profit warning on Wednesday demonstrating why. It pointed out that the company has finally admitted that its US higher education business is facing significant structural pressures.

Ahead of its results, new FTSE 100 addition Smurfit Kappa was on the front foot, with Goldman initiating coverage on the London ticker with a 'buy' rating earlier in the week with 9% FCF yield in 2017 and 2,460p target price.

British American Tobacco, after earlier in the week revealing its agreement to buy the rest of Reynolds American, also attracted plenty of positive analyst comment.

Citi on Thursday said BAT has a strong standalone story, with some of the best organic sales growth among European staples, but that Reynolds makes it even stronger, adding about 4% to EPS and 8% to FCF/share.

Market Movers

FTSE 100 (UKX) 7,216.05 -0.44%
FTSE 250 (MCX) 18,224.01 -0.48%
techMARK (TASX) 3,367.75 -0.33%

FTSE 100 - Risers

Pearson (PSON) 587.50p 2.53%
Smurfit Kappa Group (SKG) 2,100.00p 1.94%
British American Tobacco (BATS) 4,716.50p 1.78%
Antofagasta (ANTO) 760.00p 1.74%
Burberry Group (BRBY) 1,669.00p 1.15%
Kingfisher (KGF) 350.70p 1.07%
Rolls-Royce Holdings (RR.) 699.00p 0.79%
GKN (GKN) 341.90p 0.71%
Barclays (BARC) 229.15p 0.68%
Standard Life (SL.) 355.50p 0.68%

FTSE 100 - Fallers

Royal Mail (RMG) 425.30p -5.36%
Fresnillo (FRES) 1,405.00p -2.90%
British Land Company (BLND) 601.50p -2.67%
Hammerson (HMSO) 548.50p -2.58%
SSE (SSE) 1,517.00p -2.57%
Anglo American (AAL) 1,312.50p -2.27%
Compass Group (CPG) 1,417.00p -2.21%
Land Securities Group (LAND) 994.50p -2.02%
Intu Properties (INTU) 276.60p -1.91%
Royal Dutch Shell 'B' (RDSB) 2,306.50p -1.70%