US & World Daily Markets Financial Briefing 18-11-2008

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The U.S. Treasury Secretary and members of Congress locked horns on Wednesday over a $700 billion financial bailout fund, with lawmakers demanding money to stem foreclosures and Henry Paulson arguing it was meant for investing in financial companies.

At the beginning of a House of Representatives Financial Services Committee hearing where he faced a grilling over his handling of the program, Paulson insisted that injecting capital into banks was the most effective way to restore confidence and stabilize the financial system.

Federal Deposit Insurance Corp Chairman Sheila Bair, however, told lawmakers it was "essential" Treasury offer loan guarantees and credit help to slow home foreclosures under the bailout approved by Congress last month.

The $700-billion program, the government's central effort to ease a credit crisis that has put the U.S. and world economies at risk, was originally intended to buy bad loans from banks. The Treasury has scrapped that plan and has focused on using it to buy equity in financial institutions.

Some $290 billion of the first $350 billion authorized under the program already has been used or committed for use, and Paulson said he wanted to reserve the balance of it for the incoming administration of President-elect Barack Obama, who takes office on Jan. 20.

"This financial crisis is unpredictable and difficult to counteract," Paulson said. "So early last week, we concluded it was only prudent to reserve our ... capacity, maintaining not only our flexibility, but that of the next administration."

POLICY DISAPPOINTS
Committee Chairman Barney Frank, a Massachusetts Democrat, sharply differed with Paulson, who said he had "reservations" about using bailout funds to ward off foreclosures.

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"The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said. "There, I believe, is an overwhelmingly and powerful set of reasons why some of the ... money must be used for mortgage foreclosure (mitigation)."

While he said he had reservations about proposals that had been offered, Paulson told lawmakers he had not flatly ruled out using bailout funds to stem the rising tide of foreclosures.

Rising U.S. mortgage defaults has touched off a global credit crisis that economists say threatens to push the U.S. economy into a long and severe recession.

Bair, whose agency insures bank deposits, said some of the bailout money should be used to help homeowners in trouble because current federal programs were inadequate. She said an estimated 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done.

Federal Reserve Chairman Ben Bernanke, appearing on the same panel, said using the bailout money to inject capital into banks "will be critical for restoring confidence and promoting the return of credit markets to more normal functioning."

He said there were some signs of a return to more normal conditions in credit markets but said conditions were still unsettled and many banks continued to restrict their lending throughout October.

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FTSE Small Cap Index slide 1.5 pct midday

The FTSE Small Cap index falls further in mid-session trade, down 1.5 percent, outperforming the wider UK markets as the FTSE 100 Index drops 1.6 percent and the FTSE 250 Index, down 2.2 percent.

Avis Europe continues to slide, down 13.6 percent, following yesterday's profit warning and news it is to shed around 5 percent of its headcount.

Pentagon Protection surges 36.4 percent as the global specialist in the supply and installation of enhanced glass protection announces it has won two new contracts with a combined value of more than 100,000 pounds.

Havelock Europa higher on robust performance

Shares in Havelock Europa climb 5.9 percent as it reports a 14 percent rise in orders in the ten month period to the end of October, which prompts Investec to hold its estimates.

Havelock, the educational and retail interiors and point of sale group says despite a worsening climate, the business continues to perform well.

Guy Hewett of Investec Securities says as a result he is keeping his forecasts, which are of a normalised pretax profit of 8 million pounds and a fully-diluted continuing EPS of 14.6 pence for the year to Dec 31, 2008.

Heywood Williams down on full year warning

Shares in building products group Heywood Williams Plc fall 30 percent to 2.5 pence as it warns profits for 2008 will fall below market expectations and that it is talking with its bankers over appropriate covenant levels for 2009 and 2010.

House broker Cazenove, which had been forecasting pretax profits of 2.0 million pounds for 2008, now expects a loss of 2.5 million. "We are reducing our estimates to reflect the very challenging market conditions faced by the group and the lack of visibility in these markets going forward," it says. For 2009, the broker now expects a loss of 3.5 million pounds.

Infineon slides on sector report, auto industry woes German chip maker Infineon's shares fall nearly 4 percent, underperforming Frankfurt's blue-chip DAX index and the DJ Stoxx European technology index.

One trader points to a report by industry group World Semiconductor Trade Statistics, which sees the global semiconductor market shrinking by 2.2 percent in 2009, reversing a May forecast of 5.8 percent growth.

Sal. Oppenheim cuts its fair value for Infineon's share to 2 euros from 4 euros and lowers its 2009 earnings per share estimate to 0.10 euros from 0.27 euros, excluding Infineon's memory chip business Qimonda.

"Given sharply deteriorating car production, we see a high risk that the automotive business, which is the earnings engine at Infineon, could run out of fuel next year," Sal. Oppenheim says in a research note.

"Cash constraints will be the key topic in the semiconductor industry in 2009," Sal. Oppenheim says, noting that Infineon needs to refinance a 700 million euro convertible bond until 2010. "Given the painful overcapacity the industry faces, we believe that the company will not be able to improve its cash flow profile in 2009," Sal. Oppenheim says.

Oxford Biomedica down on cash uncertainty

Shares in UK biotechnology firm Oxford Biomedica tumble 6 percent as analysts voice uncertainty over its cash position, after it says in a trading update that cost savings will give it cash until 2010.

Analyst Chris Redhead from Nomura Code says he thinks the company will want to raise cash by the end of 2009, unless it manages to get a deal done on its ProSavin Parkinson's disease drug. "Given this uncertainty, we retain our neutral recommendation," he says.

Sioen shares continue tumble on transport woes

Exposure to the struggling transport sector extends a decline in Belgian textile group Sioen Industries to a second day. Among Sioen's products are coated curtains and coverings that go over trucks and trailers.

Bank Degroof's Christophe Dessain says the general transport nerves hitting Sioen are worsened by a gloomy trading update on Friday from Belgian transport and logistics firm Transics, which reported an 18 percent drop in year-on-year revenues.

Sioen shares are down 8.35 percent and Transics shares are down 6.1 percent.

"We saw that Transics had many difficulties," Dessain says, citing its weaker revenue and postponed investments.

"Sioen is enough exposed to this market, it's possible that this is lowering the shares," Dessain added.

Hunstworth falls as sees project delays

Shares in Huntsworth drop nearly 4 percent as traders react nervously to the British public relations group's announcement that some of its budgeted projects would be delayed in 2009, prompting Charles Stanley to reduce its estimates, reflecting the uncertainty.

Charles Stanley cuts its pretax profit forecasts for 2008 and 2009 by 2.8 percent and 9.5 percent respectively, while EPS comes down in 2009 by 4.3 percent.

The broker also downgrades its target to 43 pence from 66 pence due to falling sector multiples, but repeats its "add" recommendation on valuation grounds.

Safilo down 15 pct, hits record low

Shares in Italian eyewear producer Safilo SpA fall 15 percent as Goldman Sachs downgrade the group following Friday's third-quarter results and the return of Roberto Vedovotto as chief executive officer.

The shares hit a record low of 0.46 euro before paring losses.

Goldman Sachs says it is cutting its rating on the stock to "neutral" from

"buy" after

"weak third-quarter results and (is) the second profit warning this year."

A Milan broker says investors are disappointed by Vedovotto's appointment. He was chief executive officer from 2002-2006.

Target cuts weigh on SolarWorld

Shares in SolarWorld fall 3.8 percent to 15.98 euros, weighed down by target cuts from Deutsche Bank and Dresdner Bank, both citing uncertainty related to financing conditions, among other factors.

Earlier this month, SolarWorld reported Q3 results above market expectations, sending its shares higher, and Tuesday's slide is less pronounced than the declines for German solar industry sector peers such as Q-Cells, down 7.9 percent, and Solon, down 7.2 percent.

Deutsche Bank cuts its target for SolarWorld to 22 euros from 28 euros, citing in a research note "significant sector multiple compression over recent weeks and EPS cuts."

"Downside risks include further deterioration in credit and economic market conditions, which may prove our forecasts too optimistic," says Deutsche Bank, which nevertheless reiterates its "buy" recommendation.

Dresdner, which rates SolarWorld "hold", slashes its target for the stock to 19 euros from 35 euros. "The company's belief that global demand can grow 60 percent plus without the need for a notable reduction in module prices appears overly optimistic given tight financing conditions and declining consumer spending," Dresdner says in a note.

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Fortis drops ahead of court ruling

Shares in Fortis fall as much as 18 percent ahead of a ruling by a court in Brussels on the state dismantling and part sale to BNP Paribas last month of the troubled financial services group.

"Everyone's really nervous about that," a Brussels-based trader said, although added that many investors had already exited the stock.

The shares are down 14.8 percent at 0.6820 euros, against a 5.3 percent drop of the DJ Stoxx European banking index.

Laird tumbles as Q4 trading worsens

Shares in electronics group Laird Plc fall 36.5 percent to 65.75 pence as the group warns that worsening economic conditions will hit both revenues and profits in the fourth quarter of 2008.

As a result, house broker Cazenove is reducing its fourth quarter revenue forecast by 20 percent and its full year earnings estimate by 18 percent to 28.2 pence a share. It now looks for underlying pretax profits of 60.0 million pounds for 2008. Last year, the group reported profits of 76.8 million pounds.

The broker is also cutting its 2009 earnings forecast by 32 percent to 22.7 pence a share and now looks for full year pretax profits of 50.0 million pounds.

Renold down as outlook tempered

Shares in UK-listed chainmaker Renold fall 10 percent as the company says it has tempered its outlook for the near future due to global economic uncertainty, prompting Singer analyst Steve Medlicott to predict its second half turnover will be flat versus the previous six months.

"Mindful of the slow down being faced by the engineering sector we feel it is prudent to take a more cautious stance on the full-year numbers," says Singer analyst Steve Medlicott.

Lonmin falls on dividend cut

Shares in Lonmin Plc slide 8.9 percent to their lowest level in more than 5 years after the world's third biggest platinum producer says it will close uneconomic operations amid falling prices.

Traders say the company's decision to cut its final dividend payout to zero as a cost-saving measure is dragging its share price lower.

"While we think is a prudent move, this may still surprise investors," UBS writes in a research note, reiterating its "Sell" recommendation.

Lonmin, whose biggest shareholder is mining group Xstrata with 25 percent, has underperformed the FTSE All Share Mining Index by 32.18 percent on the year.

Carphone plunges on gloomy outlook

Shares in Carphone Warehouse plunge as much as 27 percent to a 5-year low of 95.5 pence after Europe's biggest independent mobile phone retailer warns trading over the next 12 months is likely to be the toughest in its history and says it is not interested in selling its telecoms arm.

"Earnings (are) clearly under pressure," JP Morgan analysts say, adding they also consider full-year net debt guidance of up to 100 million pounds ($151 million) a disappointment.

"With the model operationally geared, we would expect to see consensus falling further," they say, noting they are already below analysts' average forecasts with earnings estimates of 16.1 pence a share for the current financial year and 16.6 pence for the next year.

PV Crystalox up on robust Q3 trading

Shares in PV Crystalox Solar gain 5 percent to 119.25 pence after the wafer maker for solar systems says trading over the last four months has been better than expected, the construction of a new plant in Germany is on-track and that its full-year performance will likely beat forecasts.

"The company says that the business is trading ahead of expectations and that the new plant (in Bitterfeld, Germany) is on schedule, both in terms of costs and production ramp up. PVCS is one of the lowest-cost producers in the industry and has strong penetration within polysilicon production," says Arbuthnot analyst David Cunningham.

TA Triumph-Adler rockets; Kyocera makes bid

Shares in German office technology company TA Triumph-Adler soar 147.2 percent, after Japanese major shareholder Kyocera says it offers 1.90 euros ($2.40) per share for the company in a voluntary public takeover offer.

"At first glance, the offer appears attractive. We expect however more details from the bidding documents as soon as they are published," Equinet analysts write in a note.

The shares closed at 0.720 euros on Monday, and are up at 1.78 euros at 0951 GMT.

"For the time-being, we set our recommendation and our target under review," they add.

Most recently, Kyocera held nearly 30 percent in the company.

Spring Group eases as trading softens

Shares in Spring Group Plc ease 3.0 percent to 24.25 pence after the recruitment and workforce management company says trading has softened in the third quarter of 2008 -- traditionally its strongest period.

Altium Securities says the greatest impact has been in the group's financial services division, which accounts for a quarter of sales and 15 percent of net fee income. It has reduced its full year earnings per share forecast by 24.5 percent, while for the next two years the broker has cut its estimates by 8.8 percent and 17.2 percent respectively.

Altium has also reduced its target for the stock from 35 pence to 25 pence, but retains its "hold" recommendation for the shares.

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Peter Hambro up; broker believes "oversold"

Shares in Peter Hambro Mining, Russia's second largest gold miner, climb 9 percent as Seymour Pierce places its valuation under review, saying that it believes the shares have been oversold, having fallen over 80 percent in the last 12 months.

Seymour Pierce says in a note: "Compared to global peers and its Russian peer group, the shares appear to be currently-trading at a significant discount on an estimated value per ounce of total reserve and resources basis."

The broker adds that Peter Hambro is acknowledged as being one of the lowest cost producers globally with one of the strongest production growth profiles through 2010.

Seymour Pierce concludes the above points, combined with the gold price forward curve remaining in a gently positive upward trend over the next 4 years, lend support to its view that the shares are currently under-valued.

HP results boost European tech stocks

The Dow Jones stoxx technology index rises 1 percent against an overall lower market as Hewlett-Packard Co, the world's largest maker of personal computers, posts stronger-than-expected preliminary quarterly results.

It also predicts a full-year profit that tops analysts' estimates despite the weak global economy.

The European technology index is up 1.1 percent at 1432 GMT compared to the FTSE 100 Index which is down 0.5 percent.

Johnston Press down; Teathers cuts forecast

Shares in Johnston Press down 19.2 percent as broker Teathers downgrades its 2009 earnings per share estimate by 20 percent after talking to the British regional newspaper publisher's management.

"We have amended our advertising fade assumption for Johnston Press, in line with our thinking on Trinity (Mirror)," analyst Andrew Walsh says in a note. "As a result, whereas we saw a covenant breach as improbable in our comments in the wake of the IMS (given the levels of advertising fade in our prior estimates), this now looks likely on our revised numbers."

DnB NOR drops on ship loan woes

Shares in Norway's top banking group DnB NOR fall 8.3 percent on worries over its exposure to the shipping industry, which has been hit hard by the global crisis. Its shares hit a 10-year low earlier in the day.

"Shipping makes up some 9 percent of DnB NOR's loans, the highest portion in a decade. There's concern losses will mount, especially in the dry bulk segment that looks very different from 6 months ago," one trader says.

DnB NOR said on Tuesday a $1 billion loan to Greek-American dry bulk group Genco Shipping & Transportation is shared with 5-6 other banks.

IBA shares sink ahead of 3Q trading update

Shares in Belgian cancer diagnosis and therapy company Ion Beam Applications

(IBA) down 6.5 percent ahead of a trading update, due after Tuesday's market close, which is expected to reveal weak third-quarter figures and full-year guidance on contracts.

ING analyst Bertrand Kuentzler says the update will likely show that a shortage of radio isotopes in early September, caused by suppliers' logistics problems, hurt IBA's quarterly figures.

"Although that's a one-off, I assume it will make the figures look a bit weaker," said Kuentzler.

He adds that the market is also expecting IBA to lower its guidance on new contracts for proton therapy centers for the year.

"They had been targeting two or three new proton therapy centers in 2008 - now we're halfway through November and only one contract is close to being signed," Kuentzler says. "Probably everyone is expecting negative comments saying that some contracts are going to be delayed."

Big Yellow down on H1 fall, scrapped dividend

Shares in Big Yellow shed 1.7 percent after the self-storage group posts a 12 percent fall in first-half pretax profit, scraps its interim dividend and says it continues to experience tough trading conditions.

Citigroup says Big Yellow's failure to pay a dividend is a surprise which is blamed on continuing build-out on "potentially highly profitable existing London sites", with the key word "potentially", adds the broker.

Citigroup says it is cautious on the self-storage market as a whole and on Big Yellow, with the poor first half results reinforcing that view.

The broker has a "hold" rating on Big Yellow shares.

ASOS rises on post-results upgrades

Shares in ASOS rise 5.2 percent after the AIM-listed internet fashion retailer is upgraded to "buy" from "hold" by broker Seymour Pierce and has its 2009 pretax profit forecast raised to 13.8 million pounds from 13.5 million by broker Arbuthnot.

The upgrades follow ASOS's first-half results on Monday, which saw the retailer report a 68 percent increase in pretax profit and buoyant current trading.

"We argue that the increasing range of product lines drives enhanced customer activity and hence the acceleration in sales. New brands are constantly being added, with Karen Millen, Warehouse, Whistles and Kookai all arriving in H1," say Evolution analysts, who maintain a "buy" rating.

Conergy gains; rights issue may help

Shares in German solar energy systems maker Conergy jump 26.3 percent to top Frankfurt's technology index following the company's announcement of a capital increase, approved by Germany's financial watchdog BaFin on Monday.

"The rights issue was taken up well by investors. Maybe helped by the fact that the shares are rising," says a trader.

Conergy said on Friday it was planning to fetch about 400 million euros ($505 million) through a capital hike, using some proceeds to pay off loans.

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