FTSE 100: this year's top five losers
The FTSE 100 has endured the rockiest of rides, starting the year just above 6000 before plunging to below 5600 in mid-March. The rollercoaster ride continued until the end of June, with the index flirting with th 6100 mark before sliding to around 5650, and then launching a last-ditch rally which continued into the second half.
*** TOP FIVE LOSERS ***
ESSAR ENERGY (-29.47%)
India-focused Essar Energy, which only listed in May last year, has seen its share price fall almost 30% in the first six months of the year - the biggest drop of any FTSE 100 company.
After disappointing maiden results last year, it started this year a little more positively, gaining a boost in January from its 87%-owned subsidiary Essar Oil, which announced revenue up 21% in the three months to 31 December.
In March pre-tax profit up 28% to £365.5 million for the year to 31 December was not enough to convince investors of the stock's potential and it lost 7% of its value. The main reason for this was the admission by the firm that its expansion programme had suffered a number of setbacks and heavy monsoon rains had delayed construction of three new power plants.
The Indian government's delay in approval for Essar's planned coal mines also held the firm back as it had to supply its new coal plant with more expensive state-run coal.
But the firm insists it is closer to its production targets than it seems.
The company's aim is to expand its output ten times to 11 gigawatts over the next few years by tapping into India's need for energy as it continues to industrialise.
In the mean time the firm said it hopes to complete its acquisition of Stanlow refinery from Shell for $350 million at its AGM on 18 July. This refinery's chief purpose will be to give the company a UK base and diversify it from its core interest in India.
INTERNATIONAL POWER (-26.49%)
Fellow energy stock International Power also had a tough time of it in the first half of the year, falling more than 26%.
Events took a turn for the worse for the giant in February when it announced that it had merged its business with France's second largest utility, GDF Suez, which saw the French company take a 70% stake.
And just a month later it unveiled a downturn in its full-year underlying profit, with Europe, the US and Australia all suffering a decrease. The company said US profit was impacted by a planned outage and lower write back of fair value provisions at Coleto Creek, while in the UK low gas prices wreaked havoc.
As a result, shareholders lined their pockets with a full year dividend of 10.91p per share, down on the 12.53p they raked in the previous year.
A more upbeat outlook in April, when it said it continued to make good progress on its project pipeline, managed to rouse investors and send its shares back above the 332p mark, but the turnaround proved short lived.
By mid-May, the company's share prices had taken a sharp fall amid an announcement that it had sold its 33.3% interest in the 420 megawatt T-Power CCGT power plant in Belgium to Japanese conglomerate Itochu.
A month later it told investors it had entered into a joint venture agreement with PT Supreme Energy and Marubeni Corporation for the development of the Rantau Dedap geothermal project in Indonesia.
Since period-end, the Australian government's proposal on climate change spurred a climb in the company's shares after it responded positively to the news of carbon credits and said the plan was expected to be cash flow positive over the initial five year period.
Analysts at both UniCredit and Deutsche Bank list International Power as a buy, with respective target prices of 365p and 378p. UniCredit analysts said: "Despite recent underperformance we believe that the growth story remains intact and that a combination of exposure to high-growth emerging markets, low commodity price exposure and a strong balance sheet is an attractive investment proposition."
The six-month chart of platinum producer Lonmin's shares does not make for pretty reading, featuring enough downhill slopes to keep Eddie the Eagle interested.
Starting the year over 1,850p, Lonmin ended around the 1,400p mark following steady but unspectacular production updates that were then exacerbated by strike action at its Karee operations in South Africa.
The week-long industrial action eventually led the FTSE 100 firm to reduce its full-year guidance to sales of around 720,000 platinum ounces for the year to 30 September 2011, having initially expected to make up the lost production in the second half of the year.
With the commodities bubble looking fragile of late, it'll be hoping it can turn things around from now until December.
EURASIAN NATURAL RESOURCES (-25.43%)
Like its sector rival Lonmin, it was a steady story of decline in the first half of 2011 for Eurasian Natural Resources.
The firm, which is largely focused in Kazakhstan, warned at the end of 2010 that revenue growth was being affected "by a slowing pace of increase in prices and volumes" compared to the first half of the year.
Its next update - ENRC's fourth quarter - was greeted with another sell-off, despite it stating that it was operating at "effectively full capacity" in that timeframe.
A brief spike in the back-end of March following decent full-year results proved short-lived, as did gains courtesy of speculation commodities trader Glencore was eyeing a takeover bid.
LLOYDS BANKING GROUP (-25.42%)
The worst-performing bank stock and fifth worst-performing stock in the FTSE 100 was Lloyds Banking Group, which has shed more than 25% of its share value in the first half of 2011.
Lloyds's weaknesses, along with those of the rest of the banks, have been well catalogued and a lot of them stem from its (some would say ill-advised) takeover of HBOS at the height of the financial crisis.
But in February of this year, the group announced its full year results for 2010, which showed a return to profitability on a combined business basis, with profit before tax of £2.2 billion. This compared to a loss of £6.3 billion in 2009, so could be considered quite the turn around.
Initially after these results the stock ticked upwards towards 70p, but it followed a steady downward trend from March through to the end of June, where it finished at 44.5p.
This was not helped in May by the release of its interim management, which revealed pre-tax profit down to £284 million in the three months to 31 March, compared to £1.1 billion in the same period in 2010.
Many of the reasons for Lloyds' weakness are true for the entire banking sector. For example, concerns over the eurozone debt crisis regularly lead investors to plunder bank stocks as they consider the potential knock on effect of European governments defaulting on bonds.
News flow surrounding regulation of the banks can also have a short term impact on the stock's performance and the redress of the PPI scandal has also taken a big dent out of the firm's revenue. Additionally, as Britain's biggest mortgage lender, Lloyds' performance is tied up with the strength of the housing market and the ability of borrowers to repay their mortgages.
Despite all this, both UBS and Nomura have Lloyds listed as a 'buy', with a target price of 73p and 80p respectively.
After Lloyds released a strategic review on the 30 June, John-Paul Crutchley, analyst at UBS, said: "Lloyds's strategic review is a comprehensive document that, in our opinion, does not change near-term guidance and reaffirms our longer-term expectations.
"The market should be comfortable that there is no kitchen sinking, which implies that tangible book should have troughed, longer term street expectations look too conservative, asset quality is reaffirmed and you can therefore expect a rising return on equity on a rising book value. Given that the stock is trading at 80% of book, we think the company is materially undervalued."
This article was written for Interactive Investor
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A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A term applied to raw materials (gold, oil) and foodstuffs (wheat, pork bellies) traded on exchanges throughout the world. Since no one really wants to transport all those heavy materials, what is actually traded are commodities futures contracts or options. These are agreements to buy or sell at an agreed price on a specific date. Because commodity prices are volatile, investing in futures is certainly not for the casual investor.
Every limited company must hold an annual general meeting for its shareholders once a year to consider the company’s accounts, reports of directors and auditors and it is the only opportunity for shareholders to express their feelings to the board of directors. Shareholders also vote on the appointment/re-appointment of directors, although this may be sent to shareholders as a postal ballot.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.