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
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.