Yahoo Finance Market report: Investors shoot down BAE as analysts sound dividend alarm
BAE Systemssuffered its sharpest intraday plunge in 20 months after Wall Street analysts warned that the defence giant will continue to fire blanks unless it bolsters its war chest by cutting its bumper dividend.
The Typhoon fighter jet seller hands out £700m per year in dividends to keep investors on side, a hefty chunk of the £1bn it expects to have available to freely spend. While many of BAE’s peers are snapping up companies to propel growth, it has little left over for a spending spree or to reinvest in the company, JP Morgan analysts argued in a scathing downgrade to “underweight”.
Despite a slowdown in orders for its flagship Typhoon fighter jet forcing the company to cut nearly 2,000 jobs in October, new boss Charles Woodburn insisted that the market for the jets had strengthened in the last 12 months in its full-year figures on Thursday. The company also attempted to placate shareholders by hiking its dividend from 21.3p per share to 21.8p.
With UK defence spending under pressure, BAE could fall further behind without such investment and its “lacklustre” guidance for 2018 indicates that it will continue to underperform peers, JP Morgan said.
BAE dived as much as 5pc in intraday trade before clawing back to a 20p loss to 565p, bringing its two-day tumble following its results to 6.1pc.
Elsewhere, SIG was the biggest FTSE 250 loser, dropping 6.9p to 143.1p, after Irish rival Kingspan blamed Brexit uncertainty for delayed construction projects weakening trading.
With around 12pc of the company’s sales from insulation products sold in the subdued UK market, it is highly likely that the firm’s trading has also been affected by the construction sector’s struggles, Shore Capital analysts warned.
Lloyd’s of London insurer Lancashire clawed back 3.5p to 569p after Credit Suisse upgraded it to “neutral”, arguing that its share price had suffered enough after a hurricane-battered 2017.
Life insurer Phoenix enjoyed its best trading in over four years, jumping 55.5p to 815p, after snapping up Standard Life Aberdeen’s insurance unit, a £3.2bn tie-up that will triple the FTSE 250 company’s assets. Standard Life closed 9.6p lower at 376.1p.
Oil prices enjoyed their best week since October after US crude stockpiles declined and a large oilfield in Libya shut down amid pay protests.
Brent crude jumped back above $67 per barrel after a 3.6pc weekly rally.
Traders proceeded with caution as attention started to turn to Jerome Powell’s first monetary policy testimony as new Federal Reserve chairman just weeks after markets were rocked by inflation jitters in the US.
The FTSE 100 lagged its blue-chip rivals in Europe during a subdued end to the week’s trading. Corporate results missing expectations dragged it into the red for a second straight day before a late rally pulled it back to a 7.98-point loss at 7,244.41.
