Financials bear brunt of selling in London

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Autonomy was among the few stocks to gain on Tuesday as the FTSE 100 began September with its sharpest loss in two months.

The software group held steady against the sell-off, helped by a detailed note from Noble Insight examining its accounting methods.

Autonomy’s working capital has dipped sharply after each of its large acquisitions, leading investors to raise concerns that its revenue recognition policy could be too aggressive.

Noble analyst Arun George concluded that there were “warning signs emerging” from Autonomy’s poor cash conversion — an impression not helped by the company’s limited disclosure. However, he saw no reason to assume that its revenue policy was suspect.

“The onus is now on Autonomy to put out a clean set of results, for a sustained period of 12-18 months, demonstrating robust cash conversion which will help allay City’s concerns,” Mr George said. “Another acquisition before achieving robust cash conversion will only add fuel to the fire.”

Autonomy closed 0.8 per cent higher at £13.13.

The wider market followed Wall Street lower as rumours spread that a US bank was in difficulty. The FTSE 100 closed at its session low, down 1.7 per cent or 83.51 points, to 4,825.39.

The index had been under pressure all day after Credit Suisse strategists recommended clients to cut their allocation of UK equities.

Financials bore the brunt, with HSBC down 4.2 per cent to 644p, Man Group losing 4.3 per cent to 257½p and Lloyds Banking Group falling 4.8 per cent to 106p.

RSA Insurance lost 4.8 per cent to 124½p following a press report that it was considering a £1bn rights issue to pay down debt and shore up its balance sheet.

”With the comfortable capital position, strong non-life cash flows, and debt already re-financed, we see little need for a capital raising in the absence of any specific acquisitions,” said CA Chevreaux.

Miners trended lower along with copper prices. ENRC was the day’s sharpest faller, losing 6.9 per cent to 805p, while Vedanta Resources was down 5.3 per cent to £16.98 and Xstrata fell 4.1 per cent to 793p.

BHP Billiton, which was once again rumoured to be considering a bid for US potash maker The Mosaic Company, was lower by 2.6 per cent to £15.85½.

BG Group was 2.3 per cent lower at 993½p in spite of news over the weekend that the Brazilian government would honour existing contracts as part of a new production-sharing regime. Uncertainty about BG’s Santos Basin project off the coast of Brazil has been a recent drag on the stock.

Defensive stocks dominated the blue-chip gainers. Among them, Reckitt Benckiser was up 1 per cent to £28.80 and British American Tobacco rose 0.8 per cent to £18.88.

Diageo firmed 0.9 per cent to 962½p after US spirits industry data was viewed as broadly reassuring.

BAE Systems rallied 0.2 per cent to 312¾p following the loss last week of a US army truck contract. Merrill Lynch cut earnings forecasts but stuck with “buy” advice, saying the risk of government budget cuts was in the price.

AstraZeneca rose 0.6 per cent to £28.56 after releasing efficacy data on Brilinta, its experimental blood thinner that showed that it saved more lives than Plavix, the world’s second-best selling medicine.

Pharmaceuticals peer Shire inched 0.1 per cent higher at £10.24 after completing its US application for a Gaucher disease treatment three months earlier than expected.

Oilfield services stocks were closely watched after the first significant takeover in the sector this year, with Baker Hughes buying BJ Services for $5.5bn. The cash-and-shares deal valued BJ Services at 27 times 2009 earnings, against a European sector average of 12 times forward earnings.

Cazenove saw parallels with rival equipment providers such as Wood Group, down 2.5 per cent to 291¼p, and Weir Group, which eased 2.7 per cent to 630p. However, the broker saw European companies sticking to balance sheet funded bolt-on deals.

Inchcape led the mid-cap risers, up 3.8 per cent to 28¾p in response to firmer worldwide car sales data.

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