Last updated: December 18, 2012 7:44 pm

Vodafone sinks to 16-month low

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Vodafone hit a 16-month low on Tuesday as fears about trading and costs eclipsed further speculation about its US arm.

The stock fell 1.2 per cent to 156.3p after Credit Suisse forecast organic growth to worsen for the next two quarters, putting pressure on consensus forecasts.

Expectations for Vodafone have been “much too optimistic” because the company started selling Apple’s iPhone in late 2010, which triggered a surge in market share, Credit Suisse said. But smartphone adoption has cannibalised revenues from voice and text services so, as the iPhone advantage levelled off, Vodafone’s growth has been deteriorating faster than its peer group, it argued.

Credit Suisse also lifted its forecast for spectrum renewal costs after an auction in the Netherlands last week raised about four times the expected amount.

Vodafone shares have dropped 18 per cent in five months, even as its US partner Verizon held steady. This underperformance has led to calls for Vodafone to crystallise value by spinning out its Verizon Wireless joint venture before the US mobile market goes the same way as Europe.

The wider market turned higher for the first day in four, lifting the FTSE 100 by 0.4 per cent or 23.75 points to 5,935.90.

Meanwhile, the FTSE 250 hit a record high for the third time this month, rising 0.6 per cent. A recovery in risk appetite has pushed the mid-cap index higher by 21.7 per cent so far this year, against a 5.9 per cent gain for the blue-chips.

G4S added 2.7 per cent to 257p after it was shortlisted by the Department of Work and Pensions for a call centre contract. Goldman Sachs turned positive on sector peer Capita , up 2.2 per cent to 771.5p. “An inflection point has been reached, with organic growth returning to historical levels,” it said.

Panmure Gordon added G4S to its “buy” list. It argued that the market was ascribing zero value to G4S’s UK outsourcing business in the wake of its failure to fulfil its Olympics security contract.

“We think there is scope for the shares to recover back to their pre-Olympic peak, and do not subscribe to the view that the UK government outsourcing market is firmly shut for the company,” it said.

News of a contract with Japan’s Skymark Airlines lifted Rolls-Royce 2.4 per cent to 880p.

Rio Tinto led the miners higher, up 2.8 per cent to £35.68, on the back of buy notes from Deutsche Bank and Exane BNP Paribas.

“We believe commodity prices will be range-bound in 2013 and in this environment, the market will favour companies that deliver to plan,” Deutsche Bank said. “We advocate buying those companies with the best management performance.”

As part of the same research it downgraded Kazakhmys , which slipped 0.7 per cent to 777p.

Heritage Oil was up 5.2 per cent to 185.6p after Macquarie upgraded to “outperform” in its 2013 energy sector preview.

Production from Heritage’s recently acquired Nigerian assets was unlikely to come on stream as fast as management has guided but, with the shares at a 17 per cent discount to core net asset value, the market had already factored in the missed targets, it said, adding: “Evidence of even modest production growth can be a catalyst for the shares in 2013.”

Imagination Technologies rallied 7.1 per cent to 410.9p after Ceva dropped out of the bidding war for Mips, the chipmaker. Imagination this week offered $100m for the lossmaking company, trumping a $90m offer made by Ceva last week.

Lloyd’s insurer Catlin lost 1.6 per cent to 489.1p after warning of a higher than expected $200m loss for Hurricane Sandy, net of reinsurance and reinstatement premiums.

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