FTSE 100 Drops to Two-Week Low as Arm, Cairn Costs Overshadow U.K. Growth
U.K. stocks dropped as declines in ARM Holdings Plc and Cairn Energy Plc overshadowed faster-than- estimated economic growth.
ARM, the designer of semiconductors that power Apple Inc.’s iPhone, slumped 5.9 percent after saying operating costs rose. Cairn Energy tumbled the most in 19 months after writing off the cost of two exploration wells near Greenland. WS Atkins Plc, the U.K.’s biggest engineering-design company, sank 2.2 percent after Royal Bank of Scotland Group Plc downgraded the shares.
The FTSE 100 has climbed 19 percent since July 1 as investors speculated that actions by central banks will prevent another recession while companies from Nokia Oyj to Fiat SpA reported results that beat analysts’ estimates. The rally has lifted the index’s valuation to 11.7 times its companies’ estimated earnings from 9.9 times in July, according to data compiled by Bloomberg.
“Companies are struggling to find new avenues to get investors excited,” said Mark Bon, who helps oversee $750 million at Canada Life Ltd. in London.
A report today showed Britain’s economy grew by twice as much as economists forecast in the third quarter as services and construction helped sustain the recovery’s momentum, easing pressure on officials to add stimulus.
Gross domestic product rose 0.8 percent in the three months through September after increasing 1.2 percent in the previous quarter, the Office for National Statistics said. Economists had forecast a 0.4 percent gain, according to the median of 35 predictions in a Bloomberg news survey.
Standard & Poor’s restored the outlook on its top AAA rating for U.K. government debt to “stable” from “negative” today after the release of the GDP data. S&P warned in May last year that Britain was at risk of downgrade.
ARM, whose shares have more than doubled this year, slid 5.9 percent to 366.2 pence, their biggest drop since Aug. 3, even after reporting higher earnings. ARM said operating expenses increased 23 percent last quarter from a year earlier as the dollar declined. About 95 percent of the company’s invoices are denominated in the U.S. currency.
“We would not expect major changes to consensus fiscal year 2010” estimates, London-based analyst Nick James at Numis Securities Ltd. wrote in a report after the results. “The weaker dollar may drive a pause to earnings momentum.”
Cairn Energy tumbled 7.2 percent to 382.5 pence, the biggest drop since March 2009. The Edinburgh-based oil explorer said it will have to write off the $185 million cost of two wells off Greenland after they failed to make any commercial discoveries. Cairn plugged and abandoned the wells as the island’s summer drilling season finished on Sept. 30.
Atkins sank 2.2 percent to 775 pence after being downgraded to “hold” from “buy” at RBS, which said government cost cuts in the U.K. will hurt profit margins for “several years.”
The following stocks also rose or fell in London and Dublin. Stock symbols are in parentheses:
Carnival Plc (CCL LN), the largest cruise-ship operator, rose 4.3 percent to 2,768 pence. Royal Caribbean Cruises Ltd., the world’s second-largest cruise operator, jumped 13 percent in New York after raising its profit forecast.
Fidessa Group Plc (FDSA LN) plunged 8 percent to 1,584 pence, the biggest drop since January 2009. The U.K. financial- software developer said that “uncertainty” continued to afflict its market.
Go-Ahead Group Plc (GOG LN) jumped 6.7 percent to 1,358 pence, the highest price since May. The largest operator of London buses said trading has been “robust” in the period from July 4 to Oct. 25 and it will maintain its full-year forecast.
Separately, Chief Executive Officer Keith Ludeman will retire in July next year, the Newcastle-upon-Tyne, England-based company said.
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