Reuters share price has continued to take a pounding as analysts assess the fall-out from the recent round of price cuts at electronic trading subsidiary Instinet, which is facing increased competition from rivals for Nasdaq marketshare.
Shares in Reuters have continued their slide this morning, following a brief recovery from yesterday's two-and-a-half year low of £4.94. By mid-morning, the shares stood at £5.05 after rallying to £5.24 in early trading. The stock is a long way off its year high of £10.94.
Reuters' shares dipped below the £5 mark yesterday as investment banks cut their earnings forecast for the company on the back of lower estimates for the Instinet electronic broking unit.
Merrill Lynch cut its 2002 profit forecasts for the group by 14% to £397 million, well below the previous prevailing market consensus of £500 million. ABN Amro and HSBC also revised their earnings estimates downwards. ABN Amro analysts forecast a reduced profit contribution from Instinet of £120 million.
The downgrades follow Instinet's announcement on Tuesday that it would cut rates paid by broker-dealers trading Nasdaq stock by as much as 60%, in an effort to regain market share lost to Island ECN. Recent price cuts at Island have allowed it to overtake Instinet in percentage of Nasdaq trading. The merger of rivals Archipelago and RediBook has also added to the pressure on Instinet.
Last month, Reuters posted a 34 percent fall in 2001 pre-tax profit to £304 million and warned of further pressures on its subcription-based business lines.