Man Group’s broker cuts forecasts

Man Group was a casualty as the FTSE 100 registered its sharpest fall in a fortnight.

The hedge fund manager lost 3.3 per cent to 135¼p after Merrill Lynch cut earnings forecasts to reflect the continued weak performance of AHL Diversified, Man’s flagship fund.

Marking its forecasts to market led the broker to assume much reduced performance fees next year for AHL, which has fallen to about 12 per cent below its high water mark.

“The strategy has been in ‘risk-off’ mode, which has left it out of sync with the major recent moves,” said Merrill, Man’s joint house broker.

Its 2012 earnings forecast fell by 29 per cent with a further 9 per cent off 2013 based on reduced assets under management

“We still think that the last quarter of this year will be somewhat second rate, as although redemptions should be normal looking, sales are likely to be dull,” said Merrill. Nevertheless, it repeated a “buy” rating.

Financial stocks led the wider market lower after the European Central Bank damped hopes of more aggressive bond purchases. The FTSE 100 ended lower by 1.1 per cent, or 63.14 points, to 5,483.77.

Lloyds Banking Group lost 7.4 per cent to 25p following a BBC report that chief executive António Horta-Osório wanted to return from sick leave but would effectively have to reapply for his job.

The hint of tension in the Lloyds boardroom added to concerns about the UK economic outlook.

“Revenue targets set only as recently as June seem elusive,” said Espirito Santo, which downgraded Lloyds to a “neutral” stance. “Given the shrinking balance sheet and pressure on net interest margins from higher wholesale funding and deposit costs, income growth is Lloyds’ intractable problem,” it said.

Aviva lost 3 per cent to 314¼p, with Exane BNP Paribas highlighting the insurer’s £6.3bn of Italian exposure via policyholders.

GKN fell 3.4 per cent to 183½p and IMI was down 4.5 per cent to 737p. Credit Suisse advised avoiding both engineers because of their exposure to a “difficult recession in Europe”.

Smith & Nephew was 0.9 per cent weaker at 588½p after Stryker, the US peer perennially mentioned as a possible bidder for S&N, increased its cash returns to shareholders.

A volatile market meant defensive sectors remained in favour. British American Tobacco added 1.5 per cent to £30.15, a record high, while GlaxoSmithKline rose to a four-year high of £14.40, up 0.8 per cent.

Water utilities edged higher after a government white paper ruled out legal separation of their retail operations. Severn Trent added 0.2 per cent to £14.73 and United Utilities was up 0.3 per cent to 599½p.

PZ Cussons lost 10.4 per cent to 308¾p after warning that sustained high raw materials costs meant interim earnings had missed expectations. The soap maker also blamed challenging trading in Australia and a weak Nigerian naira against sterling.

Mothercare fell 5.9 per cent to 154p after losing its place in the FTSE 250 in an index review announced late on Wednesday. Goldman Sachs also cut its target price on Mothercare to 85p to reflect an acceleration of UK store closures.

Fellow FTSE 250 relegatee Thomas Cook lost 9.3 per cent to 14¾p ahead of results.

London & Stamford Property was down 7.6 per cent to 106½p after its biggest shareholder, GE Asset Management, sold a 9.2 per cent stake at 100p apiece.

Ashtead jumped 13.8 per cent to 211¾p after the equipment hire specialist reported an acceleration of organic sales growth in the US. Second-quarter earnings beat consensus forecasts by about 30 per cent.

Titanium miner Kenmare Resources rose 10.6 per cent to 39½p after closest peer Iluka announced price increases of up to 90 per cent with big customers for the first half of 2012.

“With limited new supply coming on line and lack of substitute products, we expect the market balance for titanium feedstocks to remain extremely tight,” said Merrill Lynch, which raised its target price for Kenmare to 75p.