Last updated: July 9, 2012 10:42 pm

Sales fears see IMI lead engineers lower

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Engineer IMI led the London market lower on fears that the eurozone crisis would hit its key markets.

A survey of distributors pointed to weaker-than-expected sales in the second quarter, particularly for companies reliant on the construction and general industrial sectors, Credit Suisse said.

“We believe that the second-quarter reporting season may disappoint relative to expectations,” said the broker. “For IMI, we believe the trends highlighted in the survey present risks for its Fluid Power division.”

IMI’s hydraulics division last year contributed 35 per cent of group turnover, with about half its sales made in western Europe.

The group’s latest update in April said sales for the division had held steady as “reasonable” growth in the US and Asia was offsetting weakness in Europe.

Merrill Lynch also saw a risk that the engineers’ earnings season would trigger downgrades. Global lead indicators were contracting and companies were likely to sound cautious, yet the sector traded at nearly 11 times forward earnings compared with a 2008 crisis trough of 6.8 times, Merrill said.

It advised investors to avoid British engineers, including Spectris and
Bodycote , because of the additional headwind of sterling exchange rates.

IMI, whose results are scheduled for next month, lost 3.3 per cent to 810p. Spectris lost 2.3 per cent to £15.00 and Bodycote fell 2 per cent at 334.4p.

The FTSE 100 ended 0.6 per cent lower at 5,627.33, a loss of 35.30 points. A widening of Spanish bond yields captured most of the attention as daily blue-chip equities volume was a third below its recent average.

Miners slipped, with Xstrata down 2.2 per cent to 815.6p on fears that the shareholder vote on its proposed merger with Glencore might be delayed until September. Glencore was off 0.5 per cent to 308.8p.

Ferrexpo slipped 9.2 per cent to 199.6p ahead of a production update, while New World Resources fell 11.4 per cent to 317.1p after Merrill Lynch downgraded the Czech coal miner from “buy” to “underperform”.

BHP Billiton, the world’s biggest producer of seaborne coking coal, was making progress resolving a labour dispute so there was less chance of an interruption to supply, Merrill Lynch said. “As a higher cost, landlocked producer of non-premium coking coal, New World Resources is at the wrong end of the pricing spectrum in an environment when prices aren’t rising,” it said.

Mineral sands miner Kenmare Resources fell 10.3 per cent to 34.2p following a profit warning from Iluka Resources, an Australian listed peer. Iluka, which had last updated the market two months ago, cut volume guidance by up to 50 per cent in response to weaker demand.

Centamin , the Egyptian gold miner, fell 9.5 per cent to 66.5p even after denying a local media report claiming it had breached concession accords at its flagship Sukari mine. “Centamin confirms that there have been no such breaches, no notice of breaches have been served and operations at Sukari continue as normal,” it said.

Sector peer Avocet Mining rebounded 15.5 per cent to 72.8p on an upgrade to “buy” from GMP Securities.

The stock had slumped 88 per cent following a warning last month of production problems at its Inata gold mine in Burkina Faso.

“Inata remains a solid asset and we think that if management scraps the expansion/mining fleet/dividend in favour of steady year-on-year mine production and conservative budgets, it should be cash generative again, so we see the sell off as over done,” said GMP. “We think the low share price makes Avocet a takeover target but, with most of the register in the red, we wouldn’t expect a lowball bid to be accepted.”

Contract news from the Farnborough Air Show put defence and aerospace companies in focus with Meggitt ahead 2.6 per cent to 403.9p, BAE Systems gaining 1.4 per cent to 296.9p and Rolls-Royce up 1 per cent to 885p.

Weaker-than-expected results sent Michael Page , the recruitment group, 3.8 per cent lower at 350.9p.

Retailers drifted lower after JJB Sports warned that its trading had deteriorated since April with the group blaming poor weather and disappointing sales of replica kits during the Euro 2012 tournament.

JD Sports slipped 3.1 per cent to 717p and Sports Direct was down 2.6 per cent to 302p. Small-cap JJB Sports dropped 26.4 per cent to 7.4p as analysts forecast the group to lose £64m over the next two years.

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