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Engineer Invensys drops 20% after profit warning, but FTSE edges higher

Invensys blames problems at Chinese reactor contracts and cost overruns at rail business for shortfall

Friday the thirteenth has proved unlucky for Invensys.

Shares in the engineering group have lost more than a fifth of their value after it issued a profit warning. It said full year operating profits would be significantly below last year due to problems with its nuclear and rail businesses. A review has thrown up the revelation that three contracts in China to install control and safety systems in eight reactors face delays and additional engineering work. This will hit profits to the tune of £40m.

In the rail division, Invensys found it needed to provide for additional costs in a small number of contracts, which will involve another £20m.

And in its controls division it is facing tough US and European markets.

Invenys – tipped as a takeover target or at least a candidate for a break-up once its pension situation is resolved – is certainly a lot cheaper now for any potential predator. Its shares are currently down 49.6p at 177.5p.

Overall, Thursday’s successful debt auctions in Spain and Italy and comments from the European Central Bank suggesting more rate cuts to come continue to support shares. With investors taking the positive view that there is light at the end of the eurozone debt tunnel, the FTSE 100 is up 25.03 points at 5687.45. Another Italian debt auction later will give more clues as to whether this mood is sustainable. US consumer confidence figures are also due, as are results from JP Morgan.

Ahead of that, banks are being buoyed by the European optimism, with Royal Bank of Scotland up 1.3p to 24.3p, helped by Thursday’s restructuring news. Barclays is 6.25p better at 199.7p and Lloyds Banking Group has climbed 0.6p to 29.75p.

Copper and other metals are steady ahead of a holiday in China – currently the key consumer of commodities – so mining stocks are in demand. Vedanta Resources has risen 36p to £11 while Kazakhmys has climbed 25p to £10.76.

But Tesco continues its decline after its shock profit warning, down another 3.65p to 319.8p after a number of broker downgrades in the wake of the figures. Credit Suisse has moved from outperform to neutral while Barclays Capital has cut its target price from 500p to 360p. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds