Bloomberg News

U.K. Stocks Climb on U.S. Budget Talks; Rio Tinto Rallies

November 29, 2012

U.K. stocks climbed, sending the benchmark FTSE 100 (UKX) Index to a three-week high, amid optimism U.S. lawmakers will reach an agreement on budget talks to avert the fiscal cliff.

Rio Tinto Group jumped 5.1 percent after the mining company announced a $5 billion savings plan. Burberry Group Plc rose 3.4 percent as newspapers cited bid speculation as a reason for a rally in the retailer’s shares. Invensys Plc (ISYS) rallied 8.9 percent after the sale of its rail unit to Siemens AG sparked speculation the company may become a takeover target.

The FTSE 100 gained 67.02, or 1.2 percent, to 5,870.3 at the close in London. The gauge erased losses in the final hour of trading yesterday after U.S. Speaker of the House John Boehner, a Republican, said he is “optimistic” budget talks with President Barack Obama will continue. The FTSE All-Share Index advanced 1.1 percent today, while Ireland’s ISEQ Index added 0.9 percent.

“Stocks are playing catch-up with the U.S.,” said Keith Bowman, an equity analyst at Hargreaves Lansdown Stockbrokers in London. “The market is hanging on every word from key U.S. politicians and that isn’t going to change in the near future.”

The FTSE 100 had lost as much as 4.8 percent in the days following Nov. 6 after U.S. President BarackObama’s re-election set up a showdown with the Republican-controlled House over the budget. The measure rallied 3.8 percent last week.

Christmas Deadline

Obama yesterday said that Democrats and Republicans can agree on a framework for a budget deal to prevent $607 billion of automatic tax increases and spending cuts from coming into effect in January.

“My hope is to get this done before Christmas,” he said at the White House.

Treasury Secretary Timothy F. Geithner meets today with congressional leaders after Boehner also said yesterday that he is optimistic officials can “avert this crisis sooner rather than later.”

Rio Tinto led a gauge of metal producers higher, climbing 5.1 percent to 3,090 pence, the biggest increase since Sept. 14. The world’s second-largest mining company said it plans to save $5 billion by cutting operating and support costs while simultaneously boosting production at its iron ore, copper and alumina units.

‘Tough Action’

“We are taking further tough action to roll back the unsustainable cost increases of the past few years,” Tom Albanese, Rio Tinto’s chief executive officer, said in a statement today. “Our two most challenged businesses are aluminum and coal, and in particular Australian coal,” he later told reporters in Sydney.

Rio Tinto joins mining companies including BHP Billiton Ltd. (BHP) in seeking cost savings as well as curbing investment on new projects as metal demand wanes.

Mining companies gained a boost from copper, which rebounded on the London Metal Exchange. BHP, the world’s largest mining company, advanced 1.9 percent to 1,970.5 pence. Vedanta Resources Plc (VED) increased 2.8 percent to 1,085 pence and Xstrata Plc (XTA) rose 2.2 percent to 1,023.5 pence.

Burberry (BRBY), the U.K.’s largest luxury-goods maker, gained 3.4 percent to 1,317 pence, the highest price since Sept. 10, as London-based newspapers including the Independent and the Telegraph cited bid speculation for recent gains in the company’s shares. The reports didn’t cite anyone.

The short interest on Burberry, which has rallied 5.7 percent so far this week, stands at 2 percent of shares outstanding, according to Markit as of Nov. 27. That compares with an average of 1.5 percent for all companies on the FTSE All-Share Index, the data shows.

Invensys’ Future

Invensys rallied 8.9 percent to 305 pence, extending yesterday’s 27 percent advance. Today’s close was the highest price for the stock since July 2011. The U.K. engineering company agreed to sell its rail-signaling unit to Siemens AG for 1.74 billion pounds ($2.79 billion). Invensys may now be broken up, analysts said.

“It may be only be a matter of time before Invensys is acquired once the sale to Siemens is completed,” said Andrew Carter, London-based analyst at RBC Capital. Proceeds from the disposal will ease the London-based company’s pension deficit, thereby removing a buy-out hurdle, he said.

Smiths Group Plc (SMIN), which has a pension deficit of 3 billion pounds, increased 2.4 percent to 1,091 pence. Smith’s CEO Philip Bowman said in June that the company was planning to take a more “active” approach to acquisitions and disposals in the coming three years.

Takeover Target

Man Group Plc (EMG) increased 3.6 percent to 76.55 pence, climbing for a second day. The Daily Mail speculated in its market report late yesterday that the hedge-fund manager could become a takeover target. The short interest on Man Group stands at 3.37 percent of shares outstanding, according to Markit.

Persimmon (PSN) Plc led homebuilders higher, rallying 3.2 percent to 796.5 pence as HSBC Holdings Plc raised its recommendation for the industry in the U.K. to overweight, meaning investors should own more shares than represented in benchmark indexes.

HSBC upgraded Persimmon, the U.K.’s largest homebuilder by market value, to overweight from neutral and raised its price estimate for the shares by 27 percent to 975 pence.

“We think sales rates, pricing, margins and return on capital will all beat market expectations in 2013” across the industry, analysts including Jeff Davis said in a note.

Bovis Homes Group Plc (BVS) gained 3.2 percent to 550 pence, Taylor Wimpey Plc (TW/) increased 4.1 percent to 59.25 pence and Barratt Developments Plc (BDEV) added 2.5 percent to 194.9 pence.

Stake Sale

John Wood Group Plc (WG/) slid 4.3 percent to 780 pence. The company’s founding shareholders sold a 4.4 percent stake. Credit Suisse Group AG and JPMorgan Chase & Co. sold 16.4 million shares, on behalf of the Wood family, for 775 pence apiece, according to the statement. The shares were offered between 770 to 780 pence each, according to the terms obtained by Bloomberg News.

Kingfisher Plc (KGF) slid 0.6 percent to 279 pence after Europe’s largest home-improvement retailer reported a 5.9 percent decline in so-called retail profit for the third quarter to 257 million pounds.

That missed the average analyst estimate of 259 million pounds, according to a Bloomberg survey. Sales at U.K. and Ireland stores open at least a year fell 3.8 percent, while revenue in France lost 2.8 percent.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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