London Report: FTSE pauses for breath as stocks fall from highs
THE UK’S top shares dropped yesterday, led down by airlines, as investors bet on a period of consolidation for the FTSE 100 after it reached a 14-year high earlier in the day.
Profit-taking continued for shares of British Airways owner IAG, and EasyJet. Both airlines have jumped around 40 per cent in the last 12 months, and investors have been cashing in the gains.
Traders said an elevated oil price was partly to blame for the declines, with Brent crude near two and a half week highs above $110 a barrel. RBC cut its target price for EasyJet, to 1,750p from 1,800p.
It cited the difficulties EasyJet set out in its results statement in forecasting passenger behaviour this summer, when people’s holiday dates might be based on whether their team was still in the World Cup soccer competition.
EasyJet led the market lower, down 6.7 per cent, followed by IAG, six per cent weaker.
The blue-chip FTSE 100 index ended down 37.60 points, or 0.6 per cent, at 6,840.89 points. Earlier in the session, it had climbed to 6,894.88, the highest level since December 1999, when it set a record high of 6,950.60 points.
The pullback seen in airlines underscored concerns about the outlook for share prices more broadly.
Lofty valuations are stopping investors from putting more money to work in equities. The FTSE 100 is trading on a 12-month forward price/earnings ratio of 13.7 times, against its 10-year average of 11.7 times, Thomson Reuters Datastream shows.
“We were at a 14-year high on not very much, really, so I just think it’s a little bit of weariness,” said Peel Hunt equity strategist Ian Williams.
Williams reckoned the UK benchmark will trade around current levels until at least mid-year, enabling earnings to catch up after what has proved a lacklustre corporate results season.
With 84 per cent of the reporting season wrapped up, 50 per cent of Stoxx Europe 600 companies have missed analyst forecasts, StarMine data showed.
Among mid-caps, Dixons Retail and Carphone Warehouse shed 10.3 per cent and 8.1 per cent respectively as investors took the view that it would take time for their £3.8bn all-share merger to feed through to the bottom line. “The benefit to derive from this merger is a (profit) margin increase, not from higher income but a reduction in costs,” Marc Kimsey, senior trader at Accendo Markets, said.