Sector movers: GKN hit by broker downgrade

13.12.2007

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GKN leads the automotive supply sector lower this morning after a trading update this morning which, despite the management's claims that 2007 results will be in line with market expectations, prompted WH Ireland to cut its rating on the stock to "market perform" from "outperform", while the price target has been cut to 310p.

GKN said car and light vehicle production in North America is expected to be marginally lower than expected this year, while Western Europe, China and India are all slightly higher.

The company said profits will be less affected by adverse currency translations in the second half than in the first half, when the weak dollar hit profits by £5m.

"Our strategic restructuring programme remains on track for completion around the end of the year and we will enter 2008 with strong order books in all our major businesses," the company said.

Meanwhile, credit ratings agency has released a report on the sector which said pressure on the industry remains high.

"Unabated requirements for annual price discounts from car producers, high raw material costs, the strong euro, growing competition in combination with increasing content from low-cost countries as desired by original equipment manufacturers (OEMs) and the ongoing low-growth environment in mature developed markets are a mix that makes it challenging to defend profitability," Fitch said.

Energy services company Hunting expects to meet full-year expectations despite the weakness of the dollar.

Pre-tax profits on a constant currency basis would be significantly exceeding forecasts, the group said, adding that current trading is strong with an order book running well into next year.

Oil and gas company capital expenditure is expected to be around 7% above 2006 levels. Early indications suggest an 11% improvement in 2008.

The group said it expects continued growth from its acquisitions, capital expenditure and additional market share gains from increased capacity in Asia, Europe and the US.

In the Technology sector, video equipment group Scotty shot higher after saying it was optimistic of a return to profitability in its next financial year, though it expects to report a loss for the full-year to end July.

Pre-tax losses for the year ended 31 July will come to about £6.3m on turnover of £5.8m, after exceptional write-downs and other costs totalling £3.3m.