MARKET REPORT: Reed Elsevier a blue-chip casualty as Barclays downgrade hits publishing firm's stock

By Jonathon Hopkins

Updated: 04:52 EDT, 28 June 2014

While the market story was fairly good yesterday, the tale for some publishing groups was less positive with Anglo-Dutch publishing giant Reed Elsevier a big blue-chip casualty after a broker turned neutral on the stock.

Barclays cut its stance for the professional publisher to equal-weight from overweight on a valuation basis and reduced its target price and estimates for the group as it struggles to see room for a further re-rating of the stock.

The broker pointed out that a re-rating and strong relative progress in earnings have driven outperformance in Reed Elsevier shares of 30 per cent since January 2012 and 20 per cent since January 2013, compared to a benchmark European stocks index.

Rating: Barclays cut its stance for the professional publisher to equal-weight from overweight on a valuation basis

‘We do not foresee operational problems for Reed but we are running out of positives that are not already recognised by the market,’ the Barclays analysts said in a note.

Reed Elsevier shares fell 7p to 935.5p, and fellow publishing and education group Pearson also came under pressure, down 9p at 1135p.

Pearson’s decline came after The Financial Times’ owner released a short statement that said its adjusted profits in the first half would be lower than the prior year, with the group having previously cited the impact of a strong pound versus the US dollar.

On currency markets, the pound was a touch lower against the US currency after the final reading for Britain’s growth in the first quarter was left un-revised at 0.8 per cent.

But sterling still held near a five-year high above the $1.70 level on expectations of a UK interest rate hike possibly before the end of this year.

Despite the interest rate threat, house builders continued to improve after Thursday’s measures from the Bank of England aimed at taking some of the heat out of the housing market proved to be not as aggressive as some investors had expected.

Blue-chip Barratt Developments gained 11.6p to 374.5p while Persimmon was 19p higher at 1278p, helping the FTSE 100 Index to close 22.65 points higher at 6,757.77.

Broker UBS said that the positive fundamentals of the UK housebuilders remained unchanged despite recent concerns about how policy changes may affect the sector.

Mid-cap Redrow added 14.7p at 282.3p as UBS upgraded its stance to buy and the rally by heavyweight housebuilders helped the FTSE 250 index end 34.63 points higher at 15,681.46.

Back with the blue chips, Barclays saw only a modest rally as investors stayed cautious following its mauling on Thursday after a US lawsuit’s allegation that it misled large institutional investors who used its ‘dark pool’ dealing service.

Barclays shares slumped 7 per cent to a near two-year low on Thursday and initially rallied 2 per cent higher. But they ended up just 0.49 per cent at 216.05p.

Blue-chip engine maker Rolls-Royce gained 23p at 1069p on market rumours that European plane maker Airbus is close to upgrading its A330 fleet with the UK firm as its sole engine supplier.

But fellow aerospace engineer Meggitt was a faller, down 3p to 507p after a broker downgrade. UBS chopped its rating for Meggitt to neutral from buy and lowered its target price to 505p from 520p on the back of worsening currency movements.

On the second line, transport group National Express drove 8.9p higher to 256.9p after its C2C operation secured the 15-year Essex Thameside rail franchise.

C2C’s victory means FirstGroup, one of the other bidders, has missed out again, having been overlooked for the recently-awarded ‘mega’ franchise of Thames, Southern and Great Northern. FirstGroup shares were 0.4p lower at 130.1p.

Among the small caps, Sula Iron & Gold gained more than 9pc, or 0.22p, to 2.7p after results from its second drilling programme at Ferensola in Sierra Leone continued to underpin its potential as a high-grade iron ore deposit.

Peer Alecto Minerals was also on the rise after surface work at its Massakama project at Kossanto in Mali identified a potentially significant gold-bearing area. Alecto shares gained 0.02p at 0.92p.

But on the downside, cloud services provider Outsourcery shed 9p to 30p after revealing that business from strategic partners has taken longer to ramp up due to delays in finalising organisational systems and sales force readiness.

Outsourcery said it is taking issues to address the slower-than-expected growth and believes it will still be capable of delivering underlying profit before tax in the current year that is in line with market expectations.