It’s only two days since I was pondering the chances of the FTSE 100 crashing below 5,000 points. At the time, the London index was hovering around the 6,000 level. It’s already fallen below 5,500 points by Thursday morning.
The immediate trigger seems to be Donald Trump’s travel ban on people entering the US from the 26 European countries of the Schengen area. And there’s the bigger fear that the coronavirus pandemic could turn out a lot worse than anticipated. But as one commentator noted, our health is more important than the stock market. And markets always bounce back anyway.
With that latter thought in mind, I think we’ll have a few months of great buying opportunities ahead of us. But we still need to select our stocks carefully. Here are two crashing shares I won’t touch.
Profit warning
Carr’s Group (LSE: CARR) shares lost 35% of their value Thursday morning, after having resisted the coronavirus-led FTSE 100 sell-off. Until Wednesday, Carr shares were only 4% down over a three-week spell that saw the Footsie lose 25%.
The fall is due to a profit warning from the agriculture and engineering group, ahead of first-half results. The firm’s agriculture division has faced “challenging” markets in the UK and the US, while its engineering division has been hit by delays in expected orders from Japan and China. Whether the latter is related to the coronavirus threat, the company did not say.
But the statement did say: “As a result of the continuing challenging agricultural environment, both in the UK and overseas, together with a delay to engineering contracts in Asia, the board anticipates the group’s performance for the current financial year to be significantly below its expectations.”
Significantly below expectations is never good, and cost reduction measures are on the cards now. Carr’s is a smaller company with rising net debt, and that suggests a level of risk that will keep me away.
Biggest crash
The biggest early crash on Thursday came from Finablr (LSE: FIN), which posted a huge 60% drop.
So far in 2020, the share price of the payments and foreign exchange platform provider has fallen 95%. That’s a dreadful result for investors who bought at flotation as recently as May 2019.
The day’s drop is a direct response to an update that said: “Finablr is currently taking urgent steps to assess accurately its current liquidity and cashflow position.” The firm blames a number of factors, one of which is “travel restrictions imposed to limit the spread of Covid-19, which have reduced demand for its foreign exchange and payment services.”
But the biggie is the firm’s relationship with the troubled NMC Health, mired in suspicions of fraudulent activity after the Muddy Waters shorting attack. The connection? The founder, major shareholder, and co-chair of Finablr is a Dr. B.R. Shetty, the ex-chair of NMC and at the centre of that company’s troubles.
I’ll need an extra long bargepole for this one.
