26 Jan 2009
By Charlotte Moore
The final reckoning on the 2008 performance of the UK’s top 100 companies confirmed the worst fears of traders who spent the last few months glumly surveying screens awash with red. It was an annus horribilis: the index lost almost one-third of its value over the course of the year.
Only seven companies managed to post a positive share price gain over the year and stay in the index.
Losses of between a third to three-quarters were more common than usual. Bottom of the pile was housebuilder Taylor Wimpey, which saw its value almost entirely wiped out, falling an eye-watering 93%. It fell out of the FTSE-100 in March and continued its plummet out the bottom of the FTSE-250 in December.
The companies that managed to shake off market blues and see their values rise were a mixed bunch.
The best performer of the year was British Energy, the UK’s nuclear group whose share price performance was boosted by a bidding war over its ownership eventually won by French rival EDF.
Up the ranks
Compass Group, meanwhile, put in a fairytale performance and completed its transformation from the ugly duckling of the FTSE-100. A few years ago it was beset by a number of profit warnings and corporate governance issues but in 2008 it posted a share price gain of 12% and unveiled record profits.
In the top performing stocks were two companies that fit the classic investor definition of defensive stocks: pharmaceutical giants AstraZeneca and GlaxoSmithKline. Drug companies are favoured in an economic downturn as demand for prescription drugs is unaffected by changes in consumer demand. These companies are also highly cash-generative and capable of paying decent d ividends.
Experian was the only financial company to see its share price appreciate over the course of the year, offsetting declines in its credit and marketing services with strong performance of its debt-recovery services and a service that provides online credit scores for business. Not surprisingly, it was a dismal year for UK high street banks. Barclays, Lloyds TSB, Royal Bank of Scotland and HBOS were all among the 20 worst-performing companies in the FTSE-100, with the value of their shares plunging between 69% to 90%; Alliance & Leicester waved goodbye to the index mid-year.
The bank’s problems lead to a rapid capitulation to a bid from Banco Santander, notching up yet another deal by the Spanish bank that has frequently flexed its financial muscles (until it said some of its clients might have lost e2.3bn to the Madoff scandal, that is) to vacuum up beleaguered banks to boost its UK market share.
Joining the index’s dunce category was one of the world’s largest mining companies, Rio Tinto. The economic slowdown sparked a reversal in the price of commodities so rapid, it caused whiplash among investors. Rio’s share price fared worse than other commodity players as it had been sustained by a bid from the world’s largest mining company, BHP Billiton. The share price sank like a deflating soufflé when the bid was withdrawn. Rio says it will slash its workforce and capex to pay down $10bn of net debt incurred when it bought rival Alcan in 2007.
Down the high street
Despite tales of woe from the high street as consumers tighten their belts in the face of recession, the performance of the retailers was mixed. Marks & Spencer was the worst-performing retailer as problems in its food division emerged in the summer, while its non-food divisions are hampered by operational and marketing weakness; its share price fell by 62%. In stark contrast, Kingfisher’s share price declined just 7% reflecting its ability to perform better than others in the tough DIY market and investors’ belief that the chain has the strength to survive even benefit from the crisis.
According to a recent Reuters poll of leading investment groups, traders expect to be able to breathe a sigh of relief in a year’s time as their screens will no longer (they hope) be awash with a sea of red. The poll cautiously predicts the FTSE-100 will rise to 4,700 from its December 2008 level of around 4,300. If things do improve, it’s likely that won’t happen until the end of 2009 as it will take time for the impact of central bank and government stimuli to be felt if it is felt.
But while sentiment rather than valuation continues to rule the market, shocks and surprises are likely to continue so expect the unexpected.
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