Market Report: Samsung suppliers hit by Galaxy cloud

Back in April, Samsung’s Galaxy S4 smartphone was the hottest device around, but fears that demand has waned swept the stock market yesterday and investors hung up on its suppliers.

JPMorgan Cazenove claimed that sales in Europe have not been as strong compared with when it first launched and declines in growth will hit suppliers of the phone, they warn.

Edinburgh-based Wolfson Microelectronics, which is the main supplier of audio chips for the smartphones, bore the brunt of investor concerns. JPMorgan said in a note that “Wolfson will be unlikely … to escape the impact of the order cuts being implemented by Samsung” and it fell more than 11 per cent on the news. Other microchip suppliers and designers to Samsung suffered. Arm Holdings edged down 14p to 864.5p while Imagination Technologies clung on to a 0.6p gain to 339.3p.

But analysts at Liberum Capital argued in Wolfson’s defence. Liberum’s Janardan Menon said he is “still very bullish on Wolfson’s longer-term outlook” and expects the group to ramp up its exposure to other new products this year, outside Samsung, including Xbox, PlayStation, Sharp, Surface and Lenovo. But he admits that a “near-term slowdown at Samsung could be a headwind”. He retains his buy rating with a 230p target but the shares finished down 23p to 179p.

Looking at the wider market, better-than-expected non-farm payroll numbers in the United States helped equity markets to recover some of this week’s losses. The FTSE 100 flew up 75.88 points to 6,411.99.

William Nicholls, a dealer at the spread betting group Capital Spreads, said: “The ensuing rally in equity markets represents a return to normality… Now investors are seeing value in equity markets and hopefully an end to sharp moves to the downside. With a bit of luck we can let raw data influence price movement rather than speculation on monetary policy.”

One of the best performers of the day was the telecoms giant BT. Analysts at Barclays think customers cannot get enough of its superfast broadband, and this demand, as well as BT’s “accelerated rollout”, will generate more revenue. At the moment the cost of the fibre broadband rollout makes it unprofitable, but as it ends and demand continues to grow, Barclays predicts, cashflow could reach as much as £3.5bn, which could imply a return of 30p a share. Barclays also likes its £400m cost-cutting plan and its move to offer customers “free” sports channels, which all add up to a reason to pile into shares.

The telecoms group is already trading at nearly a six-year high but in spite of this, Barclays upgraded its advice to overweight and lifted its price target from 300p to 360p. Punters piled in on the Barclays’ call and it rung up 11.1p to 312.8p.

A boost from analysts at Bernstein helped the commodities trader and mining giant Glencore Xstrata up 4.1p to 315.05p. Bernstein lifted its target price to 525p.

Water companies were back on the radar when Severn Trent received a third takeover bid valuing it at £5.3bn. A consortium of the Kuwait Investment Authority, the Canadian fund Borealis and the pension group Universities Superannuation Scheme announced it had raised its offer for the company to 2,200p a share, up from a 2,125p-a-share offer which was rejected on Monday. Severn trickled up 50p to 2,070p and water utility peer Pennon Group added 6.5p to 672.5p, which accompanied continued rumours that it too could receive an approach in due course.

JPMorgan’s Harm Meijer gave his verdict on the state of the property market. Land Securities came out a winner. It got top pick and an outperform rating, up from neutral, with a 1,110p price target. Mr Meijer thinks Land Securities’ strong London development portfolio, including Victoria Circle, the Walkie Talkie tower at 20 Fenchurch Street and Portland House, are a reason to buy, and it built up a 23p gain to 931p.

The outsourcer Serco has strengthened its transport business with a new £80m contract win for toll roads in Hong Kong. None the less it reversed 3p to 592p.

Results from the telecoms group KCom were slightly disappointing, but it has extended its commitment to grow its dividend by 10 per cent through to 2016, and it managed a 6.25p gain to 83.1p.

3i Group, whose portfolio includes the retailer Hobbs and Agent Provocateur, received the thumbs-up from Citi. Nese Guner rates the private-equity business a buy and raised his target price to 370p because he likes its “self-help/restructuring story”. It rose 6.5p to 337.6p.

Buy

Petra Diamonds

Snap up Petra Diamonds, Goldman Sachs suggests. The broker rates the miner a buy as the “fundamentals of the diamond market are still attractive and a global recovery will be positive for prices”. Goldman thinks strong economic growth and demand for luxury goods are reasons to buy. It upgrades its rating to buy, from neutral, with a 180p price target for shares that are 117.1p.

Sell

Aberdeen Asset Management

Flog shares in the fund manager Aberdeen Asset Management, Bank of America Merrill Lynch recommends. The analyst has downgraded the company to underperform because it predicts growth will slow in the near term. The stock is up more than 20 per cent in the year to date so the “valuation premium to peers looks unwarranted”. It gives the shares, currently 415.7p, at 410p.

Hold

Hornby

Hang on to the toy maker Hornby, Numis advises. It thinks Hornby has made substantial progress on its problem supply chain and its “reshaped senior management team” means the company looks as if it will begin to rebuild profitability. Numis rates it a hold with an 80p price target for shares that are 82p.