Tate & Lyle Share News (TATE)

LONDON (Alliance News) - UK stocks lost significant ground Tuesday amid some bad individual stock news, renewed concerns about growth in mainland Europe, and a clampdown by US authorities on US companies attempting to use mergers and takeovers to move their headquarters to countries with lower taxes.

The food retailers were among the worst performing stocks for a second consecutive day after the latest UK grocery market data showed the major supermarkets continued to lose market share to the discount retailers, adding particularly to the woes of Tesco after it said on Monday that it had overstated its first-half profit guidance.

The FTSE 100 ended the day down 1.4% at a six-week low of 6,676.08, while the FTSE 250 closed down 1.3% at 15,533.71, and the AIM All-Share closed down 0.5% at 756.08.

Major European markets also lost ground amid some weaker-than-expected eurozone PMI data, with the French CAC 40 closing down 1.9%, and the German DAX down 1.6%.

The Markit eurozone composite PMI reached its lowest level of the year in September, edging down to 52.3 from 52.5 in August, marginally missing the consensus expectation for an unchanged reading.

US equity indices were trading mixed when the European markets closed, with the DJIA down 0.2%, the S&P 500 down 0.1%, and the Nasdaq Composite just fractionally higher.

Mining stocks took back some of the ground they lost Monday, after concerns that the Chinese manufacturing sector may have slipped into contraction in September failed to materialise. The HSBC China manufacturing PMI came in a 50.5 overnight, up from 50.2 in July. A number below 50.0 would have indicated contraction.

Recent softness in precious metal prices has also been weighing on the miners, but both gold and silver rebounded from multi-month lows. At its peak Tuesday, gold was up more than 1.5% at USD1,234.45 per ounce, while silver peaked at USD18.002 per once, although both metals have softened a little towards the close of the European equity markets.

Mining was the only FTSE 350 sector index to record gains, rising 0.8%. Rio Tinto, Randgold Resources, Glencore, and BHP Billiton were all among the best-performing stocks on the FTSE 100, closing up 1.6%, 1.1%, 0.7%, and 0.6%, respectively.

UK investors woke up to the news the US authorities are clamping down on the tax loophole that has led to recent so-called "inversion deals" that allow US companies to benefit from a lower corporate tax rate by buying, or merging with, a foreign company and re-domiciling abroad. The top US corporate tax rate is about 40%, roughly double that of the UK.

US Treasury Secretary Jack Lew said the practice was an "unfair loophole" that puts a larger tax burden on all other taxpayers, including small businesses. The new rules, including a ban on companies using foreign cash without paying US taxes, and will be implemented immediately.

The news weighed on the London market, particularly the pharmaceutical sector which has received a particular boost from such deals in recent months.

Shire, which recently agreed to a GBP32 billion takeover by US drug maker Abbvie, saw its stock price tumble more than 7% in early trade as investors feared that the new rules might jeopardise the deal. The shares recovered as it became clear that the new rules are not retrospective, but Shire still ended 2.5% lower as there remains some doubt over how the Abbvie board will respond.

"America's top companies may choose not to face up against the Internal Revenue Service, but it's questionable how much power the US has to stop the practise when it involves a foreign company and associated foreign laws," said CMC Markets analyst Jasper Lawler.

AstraZeneca, which successfully rebuffed a takeover attempt by US peer Pfizer earlier in the year, closed down 5.1%, as the new rule will make it less attractive for Pfizer to come back with another offer in the future. Medical devise maker Smith & Nephew, which has also been the subject of takeover speculation, closed down 2.8%.

Tesco's new Chief Financial Officer Alan Stewart began at his desk Tuesday, more than two months earlier than planed, as the supermarket giant scrambled to clean up its act after it announced on Monday that it had overstated its first half profit estimate by GBP250 million.

The bad news keeps coming for Tesco, and the latest Kantar UK grocery market data showed that it continued to lose market share in the 12-week period to September 14. Tesco's share of the UK grocery market fell to 28.8%, from 30.2% in the corresponding period last year, the biggest decline of all the supermarkets. J Sainsbury's market share over the same period fell to 16.2% from 16.6%, and Wm Morrison Supermarkets' share dropped to 10.9% from 11.1%.

Tesco shares closed down 4.2%, Sainsbury closed down 5.4%, and Morrison closed down 2.5%.

Tate & Lyle also had a bad day, its shares falling 17% after it warned that it faced a challenging first half, and that supply chain issues will hit its annual profit. In a trading statement, the company, known for its low-calorie sweetener Splenda, said supply constraints due to a severe winter in the US caused operational difficulties in its US corn plants, which left it with much-lower inventories than usual, wiping around GBP10 million off its profit for the first quarter. For the year ending March 31, 2015, Tate & Lyle is now expecting to report an adjusted pretax profit of between GBP230 million and GBP245 million.

Wednesday's calendars are fairly sparse, with no UK economic data scheduled, leaving the German IFO sentiment survey as the main economic focus. In the UK corporate calendar, a full-year trading statement is scheduled from small-cap Topps Tiles, along with full year results from AIM-listed Clinigen Group, and a trading statement from FTSE 100-listed United Utilities.

By Jon Darby; jondarby@alliancenews.com; @jondarby100

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