FTSE steady as investors digest mixed earnings messages

By Alistair Smout

LONDON (Reuters) – Britain’s top share index held steady on Monday, struggling for direction near all-time highs as investors digested mixed corporate updates with earnings season in full swing.

The FTSE 100 edged up by 2.52 points to 6,801.67 points at 0846, just 2.2 percent off 1999’s all time high, led by a 5 percent surge in Capita.

The British outsourcing group posted a 14 percent rise in annual profits on Thursday and said it was confident on 2014 after winning 588 million pounds ($ 978.3 million) worth of new contracts so far this year.

Heavily weighted British American Tobacco contributed 2.6 points to the index’s advance, after gaining 1 percent after the world’s No. 2 cigarette maker said 2013 core earnings rose 6 percent, helped by growth in market share.

Other beneficiaries from better earnings reports were Reed Elsevier, up 1.8 percent after it said it was confident for 2014 following a rise in earnings, and Whitbread, up 2.1 percent as it expects profit to come in at the top of forecasts.

In the earnings season thus far, 69 percent of FTSE 100 companies that have reported results have come in ahead or in line with expectations, Thomson Reuters StarMine data shows.

“As a whole, we haven’t had too many bad shocks with regards to results,” Toby Morris, senior sales trader at CMC Markets, said. “However, it’s a little bit concerning how many firms are coming out and being a little bit tentative about 2014 … it puts a bit of a dampener on things.”

One such firm was the world’s largest advertiser WPP down 6.3 percent despite reporting strong trading, with Liberum and Numis both raising concern over a hit to margins and lower margin guidance moving forward.

“Full-year results were below our expectations due to a margin miss … However, the main reason for the downgrade is that WPP has taken down its longer-term margin improvement targets,” Liberum said in a note, cutting the stock to “hold” from “buy”.

“While January has started well and the share buyback programme has increased, this does not offset the disappointing message on margin improvement.”

Royal Bank of Scotland was another high profile faller, down 5.6 percent after its new CEO outlined plans for a large-scale overhaul after reporting an 8.2 billion pound ($ 13.64 billion) loss.

“We’re so far from being out of the other side of the tunnel with this stuff, it’s unbelievable. It’s another reminder that we’re six years on from the onset of this, and they’re still paying for it more than ever,” CMC’s Morris said.

Troubled British insurer RSA also fell as it too seeks to move forward with a restructuring programme, with ex-RBS CEO Stephen Hester at the helm.

It fell 3.2 percent after Hester launched a plan to boost capital by up to 1.6 billion pounds, half of which will be tapped from shareholders and the rest from disposals and money saved from a dividend cut.

($ 1 = 0.6011 British pounds)

(Editing by Janet Lawrence)