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Vodafone profit warning hits the Footsie early on

There were various gloomy statements both in the US overnight and London this morning, but traders focused on Vodafone which said its revenue expectations this year were now at the bottom of its indicated £39.8bn to £40.7bn range, reflecting Q1 performance, recent economic weakness and lower than expected equipment revenue.

Mid-morning the shares were down a hefty 14%, and it looks like they could go lower. Together with a fall of 8% in Enterprise Inns, the FTSE 100 pulled back some of the recent gains to stand 80 points down. Enterprise said continuing declines in on-trade beer volumes, together with increased levels of assistance to licensees who had to cope with difficult trading conditions, had put some pressure on group earnings.

There was some good news around, as Johnson Matthey saw a strong start to the new financial year. In its Q1, revenues grew by 33%, sales excluding the value of precious metals increased by 12%, and underlying profits rose by 22%. The shares were up over 4% on reasonably good volume and we could have a trend change here. Severn Trent also improved a touch after it said trading had been in line with expectations although its customer debt and cash collection performance remained a risk to the outlook for the year.

In M&A news, Paragon confirmed it had received approaches from parties who had expressed interest in evaluating potential offers for the company, with press reports suggesting the bidder is Blackstone. This is an interesting development in this beaten down sector, and we will watch closely as a change of sentiment could be on the cards here.

Head of Research at Blue Index, specialists in trading Contracts For Difference

22/07/2008

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