Stocks Decline in UK; Prudential Delays Offering

Arthi Gupta, Mayank Mehta and Sanjay Barot
05 May, 2010
New York City

UK construction expands at the fastest pace in April and the EC raises the nation

[R]4:00 PM London, 11:00 AM New York – UK construction expands at the fastest pace in April and the EC raises the nation’s economic outlook. Sales decline accelerates at JD Wetherspoon. Xstrata lifts output. Prudential Plc delays rights offering. UK indexes declined ahead of tomorrow’s election.[/R]

U.K. stocks trade lower despite a small rebound in the pound. Investors focused on the growing tensions in the euro-zone and worried that the region may suffer more dislocations as Spain and Portugal begin their bond offerings.

Investors are concerned the Greek bailout by the European Union and International Monetary Fund will fail to stem market contagion spreading to Portugal, Spain and Ireland. The EU and the ECB may need to provide as much as 600 billion euros to support bond offerings from Spain, Portugal and Ireland if private investors demand sharply higher interest rates.

Greek protests against government austerity measures turned fatal when three people were killed in a fire set by demonstrators in an Athens building. Public and private sector workers are staging their third joint strike this year. Protests grounded flights, shut shops and brought public transport to a standstill.

Prime Minister George Papandreou submitted an austerity bill to parliament on Tuesday that envisages €30 billion or $40 billion in new savings through deep cuts in wages and pensions and a rise in value-added tax.

The European Commission doubled its forecast for U.K. economic growth this year, saying spending by consumers and companies is strengthening. The economy will expand 1.2% this year, up from a prediction in February for 0.6%, the European Union’s Brussels-based executive agency said today. It predicted growth of 2.1% in 2011.

The government deficit will drop to 9.5% of gross domestic product in the fiscal year ending in March 2012 from 12.2% in the period that ended in March. Britain’s ratio of debt to GDP will reach about 88% in two years, exceeding the EU average, today’s report said.

U.K. construction expanded at the fastest pace in more than thirty months in April on increased demand for homes and commercial property. A gauge of building activity, based on a survey of purchasing managers, jumped to 58.2 from 53.1 in March, Markit Economics and the Chartered Institute of Purchasing and Supply said in a statement.

April’s reading is the highest since September 2007.

British insurer Prudential Plc fueled worries over its planned $35.5 billion acquisition of AIG''s Asian unit as a last-minute regulatory delay forced it to delay fund raising.

Prudential, which had planned to start the rights offer today, still expects to complete the $35.5 billion purchase of AIA Group Ltd. in the third quarter, spokesman Robin Tozer said today but did not give a timeline for the share sale.

The delay prompted speculation from analysts that Chief Executive Officer Tidiane Thiam will struggle to complete the biggest takeover in the insurer’s 162-year history. He must win the support of 75% of investors at a May 27 meeting as shareholders express concern about the cost and risk of the deal.

In London FTSE 100 Index declined 69.18 or 1.3% to 5,341.93 and the pound edged lower to close at $1.511 and edged higher to close at €1.169.

Gainers & Losers

BAE Systems plc, the defense company dropped 1.0% to 345.10 pence.

CSR plc added 3.6% to 435.30 pence after the provider of multifunction connectivity and location platforms said first quarter revenues rose 114.6% to $173.0 million from $80.6 million a year ago. Net profit for the quarter was $3.3 million or $0.02 per diluted share compared to net loss of $11.3 million or $0.09 per share a year ago.

J D Wetherspoon plc, the budget pub chain decreased 7.7% to 501.50 pence.

Legal & General Group Plc, the insurer decreased 1.3% to 81.70 pence.

Liberty International PLC, the shopping centre operator fell 0.6% to 469.00 pence.

Logica plc fell 1.4% to 134.30 pence after the software group said first quarter revenue declined 2%.

Millennium & Copthorne Hotels plc dropped 2.7% to 466.80 pence. The global hotel company said first quarter revenue rose 2% to £160.5 million from £157.1 million a year ago. Pre-tax profit for the quarter rose 69% to £18.6 million to pre-tax profit of £11 million a year ago.

Mondi plc fell 0.02% to 432.90 pence. The paper and packaging group is selling its merchant operations in central Europe and Russia for €60 million to reduce its debt and focus more on its core business.

National Express Group PLC dropped 1.7% to 230.00 pence after the bus and rail group today announces that Ray O''Toole, Chief Operating Officer, will be retiring as a director following today’s annual general meeting.

Next plc dropped 2.6% to 2,199.00 pence.

Rightmove plc, the residential property industry operator fell 0.07% to 699.50 pence.

The Sage Group PLC fell 0.5% to 244.50 pence after the provider of business management software and services said first half revenues fell 4% to £718.9 million from £748.4 million a year ago. Net profit for the first half rose 16% to £113.3 million or 8.60 pence per diluted share compared to net profit of £97.5 million or 7.43 pence per share a year ago.

Wolfson Microelectronics plc slipped 3.9% to 163.00 pence. The semiconductor company said first quarter revenues rose 13% to $28.5 million from $25.2 million a year ago. Net loss for the quarter was $4.96 million or $4.30 per diluted share compared to net loss of $3.80 million or $3.30 per diluted share a year ago.

Xstrata PLC slipped 0.8% to 994.90 pence.