IC March 2009 business news

Share prices in the lifting sector fell to an almost five-year low in February, as key results in disappointed and the wider markets slumped. Chris Sleight reports.

IC's Share Index for the lifting industry lost another 12.22% of its value in the first three weeks of February to finish week 8 at its lowest since May 2004.

One of the contributing factors was the general market malaise. The Dow was down 8.38% over the same period, with the Nikkei not far behind with a 7.23% drop, and the FTSE falling 6.28%.

The problem around the world continues to be the banking sector. Despite all the money that has been pumped in to bail them out, groups like Citi and Bank of America in the US and HBOS and RBS in Europe are still haemorrhaging money as the losses from risky mortgage-backed derivatives continue to mount up.

Increasingly there is talk of nationalising some of the most fragile institutions and then spinning off the non-performing assets into a ‘toxic bank' that would become a public liability. The theory is that this would take the bad assets out of play and bring some much-needed transparency to the sector, allowing banks to start lending normally again.

It would be a controversial move, much against the spirit of capitalism and free enterprise. A great deal of political courage would be needed to take such a step. More pragmatically, governments around the world of every political persuasion tend to be breathtakingly bad at running big state enterprises, so any nationalisation would have to be temporary.

It would clearly be the last resort for governments in the US and UK. But, with banks failing to turn themselves around and economic growth suffering due to the resultant lack of credit, there are few options left.

Crane shares

Despite these grim market conditions, there was good growth for both Hitachi's and Konecranes' shares in February, thanks to some solid financial results. Konecranes managed to grow its operating profit some 42% in 2008 and took 10% more orders last year than in 2007, for example.

Hitachi, meanwhile, reported results for the third quarter of the Japanese fiscal year (Ending 31 March), which showed net profits for the three months down some 30% on the comparable period last year. These were clearly not as bad as the markets expected, however, and Hitachi's strength in the developing Asia, where sales are still growing, gave the company a better outlook than more developed world-focused manufacturers.

Bad results, however, more than outweighed the good news in February. Most striking was Terex, which took a US$360 million impairment charge in the final quarter of 2008, giving it an operating loss for the three months of US$392 million. In addition, the company announced that this meant it could breach its banking covenants before the end of March, and that it was renegotiating lines of credit to avoid bankruptcy. Its share price nose-dived as a result.

Outlook

With banks still in a mess, there is little reason to expect share prices will rally in the near future. Having said that, many companies are now massively oversold by traditional measures of valuation so, when the markets do recover, the up-tick could be sharp.

March IC Share Index

Stock Currency Price at start Price at end Change % Change 12 months ago 12 month % change

IC Share Index* 183.48 161.06 -22.41 -12.22 546.59 -70.53

Dow Jones Industrial Average 8149 7466 -683 -8.38 12284 -39.22

FTSE 100 4201 3938 -264 -6.28 5885 -33.10

Nikkei 225 7994 7416 -578 -7.23 13500 -45.07

Hitachi Construction Machinery YEN 905 1015 110 12.15 2910 -65.12

Konecranes € 11.45 13.39 1.94 16.94 24.08 -44.39

Kobe Steel YEN 137 117 -20 -14.60 340 -65.59

Manitowoc US$ 5.91 4.42 -1.49 -25.21 40.72 -89.15

Palfinger € 8.89 8.29 -0.60 -6.75 23.84 -30.45

Tadano YEN 378 362 -16 -4.23 1008 -64.09

Terex US$ 12.57 7.77 -4.80 -38.19 66.73 -88.36

*IC Share Index, end April 2002 (week 17) = 100

Exchange rates - value of US$

Currency Value at start Value at end Change % Change Value 12 months ago 12 month % change

YEN 90.05 93.66 3.60 4.00 107.60 -12.96

€ 0.7627 0.7871 0.0244 3.20 0.6751 16.59

UK£ 0.6996 0.6945 -0.0052 -0.74 0.5098 36.21

Period: Week 5 - 8