Investor uncertainty in the metals industry is likely to persist for some time, despite the arrival on the London stock market of Corus, the company formed by the merger of British Steel and Hoogovens of the Netherlands.
Analysts said shares in Corus looked like a good long-term investment but warned they were `not for the faint-hearted’.
Corus ended the week at 128.5p, which compared with 161p before the listing. The shares dropped initially after the Dutch government offloaded 142 million shares, about 4% of the group.
The listing was also marred by a mistake at FTSE International which resulted in the FTSE 100 index being frozen for 20 minutes on Wednesday after a member of staff entered an incorrect price for Corus.
Analysts said the Dutch government’s sale had been expected and on Friday the shares regained ground as brokers issued several upbeat forecasts. Morgan Stanley Dean Witter issued an `outperform’ rating on Corus, setting a target price of 150p.
But the analysts warned that `buying Corus today is contingent on the belief that management can deliver on restructuring, that sterling will not spoil the party and steel prices will continue to recover’.
The group is expected to report losses of £22m in 1999 with proforma sales revenues of £9bn, down 7% on the previous year’s forecast. Analysts Jeremy Gray and Gideon Franklin said uncertain developments in the steel market and the sterling/mark exchange rate meant after-tax earnings for 2000 could range from a £300m loss to a £1.1bn profit.
Analysts at Salomon Smith Barney said the key question for investors was the group’s strategy.
A Salomon analyst said: `Not only do we think there is room for further cost benefits, we also believe there is room for plant reconfiguration.