Last updated: November 16, 2012 5:02 pm

Melrose leads FTSE losses after warning

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There were fresh signs of the pressure faced by London-listed manufacturers on Friday after a profit warning from Melrose sent its stock sharply lower.

The company, which specialises in buying failing companies in the sector in order to improve their performance, said it was not immune to what it called “worsening economic conditions”. It said the sales outlook for 2013 was uncertain as revenue trends slowed.

Jonathan Jackson, head of equities at Killik & Co, said: “In the last few weeks, slower trends for certain [of Melrose’s] businesses are noticeable compared to those seen in the first half.

“As a result, the sales outlook for 2013 has become more uncertain.”

Melrose’s shares fell 11.5 per cent to 208.76p by the close, the biggest single fall on the FTSE 100.

London’s main benchmark closed 72 points lower at 5,605.59, a loss of 1.3 per cent, taking it to levels last seen in July. The FTSE 100’s weekly loss extended to 2.9 per cent as sentiment across global markets remained unnerved by news that the eurozone had returned to recession.

Traders were also keeping a wary eye on US legislators as the package of automatic tax rises and spending cuts known as the fiscal cliff continued to pose a threat to the recovery in US economic growth.

Rebecca O’Keeffe, head of investment at Interactive Investor, said: “The multibillion-dollar fiscal cliff issue becomes the focus of attention for investors worldwide. Obama and the Republicans start discussions this afternoon, after what has been a torrid couple of weeks for equity markets.

“Investors will be hoping that there is enough collective desire to reach agreement, but it is almost inevitable that discussions will be protracted and go down to the wire, which is likely to keep markets erratic and volatile over the coming weeks.”

Better-looking earnings reports from engineering companies helped provide some support.

Shares in engineer Bodycote rose 4.6 per cent to 379.19p after it reported a 3 per cent rise in revenue for the three months to November 15, allowing it to underline its targets for the full year.

The news kept it out of a wider trend for profit warnings from industrial stocks, with the sector facing headwinds from the slowing eurozone economy and uncertain conditions in the UK.

The thermal processing specialist said sales within its aerospace, defence and energy units rose by 14.4 per cent, helped by a strong showing in North America.

“With many expecting the company to warn [on profits] today, it is a ringing endorsement of the company’s strategic progress,” said Harry Philips, analyst at Investec.

“Bodycote has broken away from the previously tight correlation between its share price and European industrial production, a factor that is simply not reflected in the share price.”

Meanwhile, IMI Group made one of the best gains on the FTSE 100, up 2.2 per cent at 962.31p, after it left profit guidance for the full year unchanged. The Birmingham-based maker of fluid control valves said revenue growth over 2012 to the end of October came in at 4 per cent.

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