FTSE 250 movers: CFD providers crumple, Drax diversification delights
The FTSE 250 index decoupled from the blue chip benchmark on Tuesday, dragged below 17,500 by sizeable slumps from two spread-betting providers and with broker downgrades hitting others.
A proposal by the City watchdog to impose stricter rules on the selling of contracts for difference sent IG Group shares plunging more than 40% to just above a four-year low and CMC Market to around half the level of its February flotation.
The Financial Conduct Authority revealed on Tuesday morning that it would consult on the range of new rules for firms selling CFDs to retail customers, with the aim of improving standards across the sector and ensuring consumers are protected.
Even though the pair are not the chief targets of the clampdown, as they are felt to operate at the higher end of the market with clients that have a greater understanding of the products, and should therefore be less impacted in relative terms, analysts agreed that there would be some fallout.
Analyst Jonathan Goslin at Numis put his rating on IG under review and downgraded CMC to a 'sell' rating from 'hold', noting that binary bets were one of CMC's key growth areas. He said he believed the majority of the regulation being discussed or implemented has been targeted at the lower quality end of the market, but was "likely to have a material impact, at least in the near to medium-term, on CMC's growth and profitability across the UK and Europe".
Playtech, which has recently been building a financials arm to add to its core gaming business, was caught up in the fallout, as was inter-dealer broker Icap.
Instead of a regulator, it was analysts at Stifel that put a crease in the commercial laundry specialist Berendsen, with the shares downgraded to ‘sell’ from ‘hold’ and the price target slashed to 710p from 1,180p. The bank said it was cutting its full-year 2016 and 2017 adjusted pre-tax profit estimates by 8% to £154.4m and £167.9m, respectively, following the third-quarter profit warning in October, mostly to reflect operational shortcomings in UK flat linen.
Tullow Oil was also seeping lower after Goldman Sachs cut the stock to ‘sell’ from ‘neutral’ and trimmed the target price to 221.8p from 247.2p.
“Since the November 30 announcement of OPEC production cuts, the stock has rallied about 20%, in line with the front month of Brent, and we think it is now trading above the fundamentals of our long-term oil price assumption (US$60 per barrel),” Goldman said. The investment bank also raised a note of caution on the reservoir performance of the Tweneboa, Enyenra and Ntomme (TEN) fields offshore Ghana after the trading update last month from Tullow said production ramp-up at TEN was hurt by issues with water injection systems.
Top of the leaderboard on Tuesday was Drax, after the Yorkshire power station owner conditionally agreed to buy retail energy supplier Opus Energy for £340m and separately agreed to acquire four open cycle gas turbine (OCGT) development projects to green-up its electricity generation. Even though the company reiterated that full-year earnings were likely to be at the bottom end of market expectations, the news that it was diversifying sent the shares up more than 12%.
RBC Capital Markets said: “We have previously stated that we see Drax as a limited life asset in its current form and that strategic changes are necessary to make us reconsider our ‘underperform’ stance. It appears that Drax has taken a significant step in the right direction this morning.”
RBC also helped lift OneSavings Bank, with an upgraded to ‘outperform’ from ‘sector perform’ and a hiked price target to 355p from 305p sending the shares higher. The Canadian bank said its downgrade of the stock to ‘sector perform’ last month was premature and based on overly conservative estimates: “Our downgrade was not based on anything wrong with OSB (to the contrary, we indicated that OSB ‘continues to grow and to perform,’ but we noted ‘recent share price performance’). Now, based upon our increased forecasts and price target, we believe the shares are once again set to outperform.”
FTSE 250 - Risers
Drax Group (DRX) 310.20p 11.74%
OneSavings Bank (OSB) 335.20p 6.41%
AA (AA.) 277.00p 5.77%
Grafton Group Units (GFTU) 538.50p 4.26%
Berkeley Group Holdings (The) (BKG) 2,911.00p 3.89%
Supergroup (SGP) 1,620.00p 3.58%
UDG Healthcare Public Limited Company (UDG) 673.00p 3.46%
Thomas Cook Group (TCG) 88.70p 3.20%
Brewin Dolphin Holdings (BRW) 284.90p 3.15%
Savills (SVS) 693.00p 3.13%
FTSE 250 - Fallers
IG Group Holdings (IGG) 467.80p -40.56%
CMC Markets (CMCX) 117.00p -36.55%
Berendsen (BRSN) 789.50p -6.73%
Tullow Oil (TLW) 310.90p -6.47%
Evraz (EVR) 224.60p -4.43%
Weir Group (WEIR) 1,869.00p -2.96%
Indivior (INDV) 311.70p -2.75%
Hunting (HTG) 585.00p -2.74%
Playtech (PTEC) 805.00p -2.66%
Acacia Mining (ACA) 387.40p -2.44%