Anglo American avoids broader market woes

A revival of break-up speculation helped Anglo American avoid a market slump on Tuesday.

Selling its iron ore mines would be a "game changing transaction" for Anglo, Investec Securities said. "An exit from iron ore could be the start of a move back to the group's precious metal and diamond roots."

Anglo's production costs are far higher than peers and Minas Rio in Brazil, a flagship project for previous chief executive Cynthia Carol, is already three times over budget, Investec said. Using current metals prices to 2018, it estimated a negative value for shareholders on the ore division.

However, the division could be worth $4.66bn to a buyer in China, where steel mills are keen to avoid becoming too dependent on the main producers, Investec said, adding: "A sale for anything around $4bn-5bn in cash would materially strengthen the balance sheet, reduce the risk of a dividend cut, and provide resources to advance potentially more attractive projects."

Anglo ended 0.4 per cent higher at £11.32 as a weaker dollar helped support metals prices, lifting a volatile FTSE 100 from its session low. The benchmark finished down 1.4 per cent or 96.05 points at 6,944.80.

EasyJet led the fallers, down 9.8 per cent to £16.54, after the airline cut revenue guidance for the second half. It blamed competition, along with French air traffic disputes and Easter holiday bookings occurred during the previous quarter.

Retail sales data also showed the effects of the early Easter holiday, with furniture and home-related sales much weaker than in March. Kingfisher, which has a trading update on May 28, slid 3.5 per cent to 357.5p.

Competition from discounters such as B&M has forced Kingfisher to cut the prices of its cheaper items sharply, which will be putting margins under further pressure, Bernstein said.

Greggs eased 3.5 per cent to £11.42, with Berenberg repeating "sell" advice. Further cash returns are unlikely before 2016 and a valuation of 22 times earnings is too high for a business with historically weaker growth and lower margins than its UK peers, it said.

Thin volume squeezed Hunting, the onshore rig services specialist, 2.8 per cent higher to 592p. The shares have been active in recent weeks amid talk of bid interest from North America.

Thomas Cook rose 2 per cent to 156.1p on an upgrade from Credit Suisse. The shares trade at a 30 per cent discount to Tui on 2016 earnings, having underperformed its larger peer by 45 per cent since September, and in spite of an improving outlook in both the UK and the Nordic region, the bank said.

Regus was down 6.8 per cent to 245p after founder Mark Dixon sold 30m shares at 245p apiece.

Having been weak on Monday, Greene King bounced 3.2 per cent to 830p and Spirit was up 3 per cent at 115p after JPMorgan Cazenove advised buying pub stocks. "The major pub companies have generally stable and predicable cash flows with attractive yields and are well placed to improve returns through an improved mix of sales and consolidation," it said.

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