Morning:
13°c
CAR dealer Inchcape slammed into reverse today as HSBC warned that a recovery in sales remains more than a year away.
Shares in the company, which has franchises for Toyota, Jaguar and Smart, dropped 1p to 28.8p as the bank's pointyheads advised dumping the shares as demand will continue to fall during 2010.
They also dismissed any boost from the Government's “cash for old bangers” scrappage scheme as “immaterial”.
HSBC reckons the recent spike in Inchcape's share price, which has seen them more than quadruple in value since March, therefore looks “unjustifiable”.
But they have upped their price target from 21p to 24p, still below today's price, as they note that debt levels are no longer a concern after its heavily discounted cash call earlier this year.
Inchcape's next trading update at the end of October will confirm a recovery in used-car margins in the UK, HSBC predicts, but a further year-on-year decline in new car sales.
Shares in London lost ground, with the FTSE 100 giving up 9.32 points to 4747.26, as investors booked profits from yesterday's rally in mining stocks. BHP Billiton sank 25p to 1537p, Lonmin dropped 23p to 1417p but Rio Tinto was the hardest hit among them, losing 45p to 2290p.
The Rio sell-off came despite largely positive verdicts from brokers in response to the mining titan's results yesterday. Citigroup advises snapping up the stock, despite its grim start to the year, as its analysts believe the second half and next year look much rosier for Rio.
They reckon things are looking up now that its balance sheet is patched up, metals prices are rising and cost-cutting moves are starting to take effect.
Now its mega cash call has taken a chunk out of its debt mountain, Citi says Rio can restart its stalled projects and complete its coal projects in Australia. UBS has also taken a shine to Rio, saying yesterday's results had the potential to be much worse given the low price of aluminium in the first half of the year.
Drugs tiddler Skyepharma lost 2¼p to 100p as it posted a pre-tax loss of £5.8 million for the first six months of the year.
The biotech group, whose shares have lost 90% of their value in the past two years, finally won approval from the US Food and Drug Administration to sell its Flutiform asthma drug this year and said today that it expects to file for EU approval by early next year.
Wall Street investors faced a mixed bag of economic news, but seemed to focus on the positive, pushing the Dow Jones up 70.89 to close at 9350.05.
Financials led the way, cheered by news that President Obama will trim his budget deficit forecast next week by wiping out a $250 billion provision for further bank bailouts.
Citigroup rose 8% to $4.45, Bank of America added 2% at $17.10 and Wells Fargo climbed 3% at $27.48.
This helped offset an unpredicted increase in the number of people claiming unemployment benefits for the first time.
In Tokyo, leading shares fell sharply, with the Nikkei Average reversing yesterday's rally to end down 145.21 points at 10,238.20. Toyota and the other carmakers dragged the index lower, skidding on news that the US is ending its “cash for clunkers” scrappage scheme.
Other exporters slipped as the yen rose slightly against the dollar. Hi-tech exporters such as Kyocera were hit especially hard. Brokers cautioned that the economic news from the US was keeping investors skittish.
Japanese investors are also nervously waiting for the general election at the end of the month, which could see the opposition Democratic Party heading for a landslide victory against the conservative party that has ruled for most of the past half-century.
One bright spot was Japan Airlines, Asia's biggest carrier by revenue, which climbed 1.2% after saying it would start talks to merge its ailing air cargo business with a unit of shipper Nippon Yusen.
Hong Kong shares fell sharply as fears resurfaced about a likely clampdown on China's easy monetary policy, while shares in China Mobile continued to slide after a disappointing second-quarter performance. The Hang Seng index was 181.05 lower at 20,147.81.
