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Monday October 27 - afternoon update
The automotive and aerospace engineering group GKN lost a fifth of its stock-market value today after warning that the slump in the car industry means its profits will come in much lower than expected.
GKN supplies all the world's major car and light-vehicle makers with components and, while it had already anticipated the massive slowdown in the US market, it had not expected the rapid knock-on effect on European and other markets around the world.
The company expects fourth-quarter automotive profits to be 70% down on the same quarter in 2007. Aerospace demand has held up well, but is likely to be hit now by the Boeing strike.
Most analysts had forecast modest growth from GKN, with profits rising from £255 million in 2007 to around £265 million. But those forecasts have now been slashed to around £200 million.
The group plans to cut its workforce, shut down some plants and move to short-time working at others. Most of the job cuts will come among the 1400 temporary workers who make up the group's 42,000 workforce worldwide.
In the UK, GKN employs around 5000, of whom 2000 are in the automotive businesses. The shares fell 22½p to 95p.
Elsewhere, investors had to endure more volatility, with share prices briefly touching their lowest since March 2003. It followed another sell-off in Asia this morning, which saw Tokyo's Nikkei 225 slump to a 26-year low.
The FTSE 100 index, down more than 200 points earlier, later reduced the deficit to 11.16 at 3872.2. Wall Street suffered wild gyrations before the Dow managed to reduce the deficit to 5.02 at 8373.93. Turnover has slowed to a trickle, with even the bargain-hunters proving too timid to move. This is the stuff traditional bear markets are made of — a complete loss of confidence.
Aviva was a nervous market, leading blue-chips lower with fall of 7½p at 239¾p, after touching 210½p, ahead of third-quarter results tomorrow. Rumours running around the Square Mile claim the life assurer may decide to cut the dividend in order to conserve cash. The full-year payment to shareholders is estimated to cost Aviva a billion quid.
The insurers were also hit by fresh claims that they may need to sell off part of their share portfolios in a falling stock market to comply with solvency requirements. Legal & General fell 3.4p to 67.6p and Prudential lost 3p to 283½p.
Meanwhile, UBS has raised its stance on Old Mutual, 0.75p firmer at 37¼p, from neutral to buy, claiming the shares have been oversold because of the unusual spike in South African sovereign debt spreads. Cattles firmed ½p to 38½p after Credit Suisse slashed its target for the finance provider from 115p to 50p.
Europe's largest bank, HSBC, lost 16p to 680p following a fresh wave of selling in the Far East this morning. It comes on the back of last week's cut in price target by Morgan Stanley. But there was some support for the bears' favourites, such as Lloyds TSB, up 12.6p at 178.4p, and HBOS, 5.4p dearer at 65.3p.
Shares in the big mining companies have fallen a long way already this year, but still have some way to go, warns Citigroup. It says the sector faces the perfect storm in the short term — a combination of falling commodity prices, a rising dollar and an aggressive unwinding of pent-up cash along with further earnings downgrades.
Share prices in the sector will recover, but this is unlikely to be before the New Year. Among the losers today were Lonmin, down 55p at 1119p, Xstrata, 41½p lower at 736p, and Eurasian Natural Resources, 20p off at 30p.
Wolseley rallied 4p to 279p following last week's decision to cut jobs at loss-making operations in the US. But Goldman Sachs reckons that much of the bad news is already in the price and has raised its rating from sell to neutral.
