Last updated: October 8, 2012 8:10 pm

BT drops following earnings concerns

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BT Group was a faller on Monday on fears that results next month would put pressure on earnings forecasts.

BT was likely to be seeing reduced business from Vodafone after the latter completed its purchase of C&W Worldwide, said Morgan Stanley. It estimated an initial £50m hit to earnings and a sharper effect on revenue, given the low margins involved.

Vodafone UK signed a five-year deal in 2008 to use BT lines to connect its base stations to a central network. BT has not yet detailed the impact of losing Vodafone’s transit traffic, known as backhaul.

Morgan Stanley also feared another downturn at BT’s Global Services business, after the lossmaking division last month appointed its fourth chief executive in as many years. It forecast Global Services sales to have fallen 12 per cent for the second quarter.

In addition, a regulatory ruling on pricing for calls to toll-free numbers would cut BT’s wholesale revenue by about £15m, said Morgan Stanley. The assorted headwinds meant management was unlikely to meet its previous guidance for this year of “improving revenue growth ex transit”, it said.

BT slid 3 per cent to 226.9p, in spite of Morgan Stanley repeating “overweight” advice. “BT faces some bumps near term but these do not affect the medium-term picture of stable cash flow due to a supportive price environment and transition to fibre, all at an attractive” 10 times forward earnings, it said.

The FTSE 100 turned lower for the first day in four, losing 0.5 per cent or 29.28 points at 5,841.74.

Engineers led the fallers after a profit warning from ceramics maker Cookson, which said the seasonal bounce in steel industry demand had failed to materialise. Cookson lost 12.4 per cent to 539p, with the warning raising uncertainty over its plans to demerge its electronics unit.

Morgan Crucible , which overlaps Cookson for steel equipment and solar panels, lost 7.8 per cent to 257.8p. GKN slid 4.2 per cent to 216.9p, Melrose lost 3.3 per cent to 238.4p and Bodycote fell 4.9 per cent to 391p.

Copper’s biggest drop in two weeks weighed against the miners, with Evraz off 3.7 per cent to 244.7p and Vedanta Resources 3 per cent lower at £10.68.

Anglo American drifted 0.6 per cent to £18.03 and Lonmin lost 5.9 per cent to 516.5p amid fears of further disruption in South Africa, where nearly a quarter of miners were on strike.

Aquarius Platinum lost 10 per cent to 42.8p on the unexpected resignation of its chief executive, Stuart Murray. “Stuart Murray has been the driving force behind Aquarius Platinum having become CEO 11 years ago,” said Liberum Securities. “He is the fourth CEO in the platinum industry to step down in the last year in the face of some pretty horrific circumstances for the industry.”

Imperial Tobacco slipped 2.4 per cent to £23.14, having been buoyed on Friday by a retread of theories that it might be a takeover target for Japan Tobacco.

Nomura argued that, while such a deal made sense, it was likely to be at least a year away. Japan’s government was unlikely to reduce its 50 per cent stake in Japan Tobacco before the first quarter of 2013 and the European Union would be working on a tobacco directive next year, making for regulatory uncertainty, said the broker. It downgraded Imperial to “reduce” on valuation grounds.

Sausage maker Cranswick lost 5.9 per cent to 745p after warning of weather-blighted summer sales and rising hog prices.

Peel Hunt said: “The next six months are likely to be challenging for the pork industry and Cranswick will not be immune. This will inevitably put pressure on forecasts.”

Dixons Retail rose 2.6 per cent to 21.5p, with Espirito Santo repeating its “buy” advice after a meeting with management. In particular, the broker highlighted that the group’s lossmaking Pixmania website would cost only £50m to shut down, and that problem divisions in Italy and Turkey would benefit from taking part in local consolidation.

“What we heard, and saw, has increased our conviction that Dixons has a sustainable business model as the UK and Nordics’ leading multi-channel electricals specialist,” said Espirito. “Management is under no illusions about the negative impact of Amazon and Apple on the industry, but has a strategy to compete and win. Furthermore, management is addressing Dixons’ lossmaking businesses as a matter of priority.”

Recruiter Michael Page lost 0.6 per cent to 363p on its third cut to earnings guidance in three months.

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