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British Airways owner IAG expands at Heathrow, as FTSE comes back from the brink to rise 0.5%

International Consolidated Airlines Group has made further moves to expand its capacity at London’s Heathrow airport by acquiring six daily slots from bmi British Midland, but the news did little for its shares in another volatile day for the markets.

Analysts suggested the airline’s move could be a precursor to IAG – formed from the merger of British Airways and Iberia – making a full takeover bid for bmi, currently owned by Germany’s Lufthansa. Douglas McNeill at Charles Stanley said:

Here is clear evidence that IAG has an appetite for expansion at Heathrow, and the fact it has been able to bag these slots suggests that its appetite is greater than any other user of the airport. All that supports our thesis that IAG is likely to end up owning the whole of bmi [which] is still a strategic headache for Lufthansa, and still an unmissable growth opportunity for IAG.

IAG edged up just 0.5p to 142.1p but overall the FTSE 100 finished 25.20 points higher at 5066.81, having fallen as low as 4928 at one point. Even so the leading index recorded its second worst weekly fall of the year, down 5.62% compared to the 9.93% it lost in the first week of August.

Initial enthusiasm following a G20 statement hinting at co-ordinated action over the current global economic crisis soon faded, with investors deciding they wanted to see action, not words. But in the absence of action, there were a number of rumours running round the market, including talk of a positive think tank report on the European Central Bank, a possible meeting between US banks and the IMF this weekend and various moves to boost the European bailout fund. Next week sees the latest visit of the ECB, EU and IMF to Greece, with hopes that the country’s planned austerity measures will be enough to release the next tranche of European bail-out funds. The mood was helped by talk of possible French state support for its banking system, weighed down by Greek and Italian debt.

Joshua Raymond, chief market strategist at City Index, said:

Trading has been very choppy today, with investor sensitivity high and reacting to any news, comment or speculation out of the G20.

Angus Campbell, head of sales at Capital Spreads, said:

A dip below the psychological 5000 level proved too tempting for some investors who have dared to tip their toes back in the water. [But] the move to sub 5000 prices shows there is an appetite for people to sell down at these levels so further losses in the days ahead cannot be ruled out, particularly if political and finance leaders cannot come up with a concerted resolution to the possible threat of another global recession.

The fear of a global economic slowdown meant mining shares were again among the leading losers. Fresnillo fell 73p to £16.36 while Kazakhmys closed 32.5p lower at 814p.

But banks bucked the downward trend after the French rumour. Barclays rose 7.15p to 146p and Lloyds Banking Group added 1.635p to 34.145p.

Man, up 10.4p at 231.4p, was lifted by a positive note on the hedge fund manager from Singer Capital Markets, while Vodafone rose 2.45p to 161.6p after UBS added the mobile phone business to its UK first eleven list with a 190p price target.

Tesco, whose shares came under pressure following a shake-up of its pricing strategy designed to regain lost ground in the UK market, recovered 8.95p to 365.2p after Evolution Securities moved from sell to neutral. The broker said:

The repositioning takes effect from Monday and we will take a close look in stores then, but in principal this appears to be the right strategic move by Tesco and should help the company get on the front foot.

Inmarsat, the subject of much speculation about private equity interest, climbed 14.7p to 477.8p in the wake of Thursday’s share purchase by director Eugene Jilg and an overweight recommendation from HSBC analysts. They said:

Upcoming newsflow – potential statement from the Federal Communications Commission regarding [US partner] LightSquared, share buyback program, Sprint analyst meeting regarding [an LTE network] – [could] act as a catalyst for the shares.

Reed Elsevier rose 4.7p to 486.6p as analysts at RBS followed Panmure Gordon in suggesting a break-up of the business in the wake of a similar move by US group McGraw Hill. RBS said:

With Reed shares trading 30% below their break-up value and frustration in the market at the stock’s lack of performance, we believe pressure may build for the company to follow McGraw Hill’s example and consider radical change.

We see several possible permutations if Reed decides it wants to follow McGraw’s lead. It may make sense to dispose of Lexis Legal (15% of group profits) and we note that Bloomberg recently paid nearly bn for BNA at 13 times 2010 EBITDA (well above Reed’s group multiple of 8 times). It may make sense to spin out Risk Solutions as a pure play (US peer Verisk trades on 12 times 2011 forecast earnings). It may even make sense to spin-out Elsevier (46% of group profits), effectively splitting Reed in two.

Halfords was 18.6p higher at 313.1p as Oriel Securities analyst Jonathan Pritchard moved his recommendation from hold to buy ahead of a trading update in early October. Oriel said the update was likely to be poor, but management was getting to grips with the problems at the company:

The current valuation of Halfords’ shares suggests a degree of distress. That is simply too aggressive in our view. The attractive dividend is covered 1.7 times by earnings per share and 1.6 times by cash, even on our low-end forecasts. We think management action will arrest the decline in margins, and whilst the company won’t appear on any growth fund’s radar for a while, it should be seriously considered right now by income investors.

Lower down the market Synchronica, the mobile messaging specialist, slid 32% to 9.875p after chief executive Carsten Brinkshulte and head of marketing Nicole Meissner both left the company. At the same time Synchronica said that some m of expected payments from customers would not now be settled in the fourth quarter, but would be delayed until 2012. It said:

The company is owed payment from a number of device manufacturer customers…linked to the manufacture of devices to which Synchronica software was applied. Many of these devices are yet to be manufactured. The device manufacturers have yet to pay Synchronica for the software licences provided. It is now clear that a significant part of this cash will not be collected until 2012.

The company expects to alleviate this through acceleration of payments from other customers, invoice discounting and/or short term loans. The company will also seek to reduce its cost base.

Analyst David Johnson at Northland said:

A very disappointing announcement so soon after the acquisition of the Nokia OBM business and placing at 16p a share. The loss of the chief executive, who was also a key salesman, as well as the head of marketing is a blow as Synchronica enters the critical fourth quarter selling period.

Finally Flying Brands, the gifts, home shopping and gardening business, fell 7.25p to 11.5p after it warned it could breach its banking covenants in October. It said the performance of its Gardening Direct business during the autumn selling season had been below expectations, as had trading at its other businesses. It said it was in advanced negotiations about selling non-core property assets, but warned it may need to renegotiate its banking arrangements or seek a waiver from the bank.

Analysts at its broker Singer Capital Markets said:

This miss [from Gardening Direct] and subsequent margin hit from clearance means losses are likely to push towards £1m this year, making a covenant breach in October likely. However, certain non-core property assets are earmarked for sale which will provide temporary relief. We place our forecasts under review and await news on a new financing plan. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds