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Leading shares ended with a three-figure loss, as Vodafone's merger with Mannesmann cast its shadow, prompting selling of large liquid sectors such as banks and oils so cash could be reinvested in the telecoms sector. With fund managers and arbitrageurs grappling with the implications of the largest merger in corporate history, the FTSE 100 closed 139.3 points lower at 6,185.0. At that time the Dow Jones Industrial Average was flat, while the Nasdaq was 48 points stronger.
Over the week the FTSE 100 has lost 190.6 points. Elsewhere the picture was mixed. The FTSE 250 index fell 18.3 points to 6,148.0, while the FTSE Small Cap added 4.3 to 3,164.2 and the TechMARK advanced 212.6 to 4,451.43. Market turnover was robust, touching 3.02 billion by 4.49 pm on Friday, with Vodafone AirTouch (1.325 billion) the most actively traded stock. Dealers said this equated to 50,000 Vodafone shares being traded per second.
Vodafone closed down 22 pence at 346-1/2 as positions were closed and profits taken following the approval of Mannesmann's supervisory board to the merger. The new group will account for around 15 per cent of the FTSE 100 and will be Europe's largest publicly-traded company, and will also rank as the fourth largest company in any industry globally behind Microsoft, GE and Cisco Systems. With fund managers forced to increase their exposure to the telecoms sector ahead of the completion of the deal, and with an equal number not allowed to increase holdings in Vodafone, a situation developed whereby large liquid sectors such as banks, pharmaceuticals and oils were sold to raise cash, which was ploughed back into the telecoms sector.
The mortgage banks were among the worst affected by this indiscriminate selling, with Abbey National down 59 to 653, Woolwich off 26-1/4 at 288-1/2 and Alliance & Leicester, 27-1/2 weaker at 470-1/2. Things were not much better for the blue chip banks, Barclays declined 64 to 1,387, Lloyds lost 16-1/2 to 610 and HSBC eased 37 to 697.
Elsewhere, Glaxo Wellcome tumbled 58 to 1,539, SmithKline Beecham fell 44 to 701, while BP Amoco lost 22 to stand at 503-1/2 and Shell moved 18-3/4 lower to 421-1/2. On the flip side, indiscriminate buying of the telecoms sector sent Energis up 257 to 3,574, Colt Telecom 195 higher to 3,746 and Cable & Wireless to 1,306, a gain of 63. There was even a good performance from laggard BT, up 55 at 1,030. Yet even the gains of the heavyweight telecoms sector was eclipsed by the performance of the tech sector. Sema surged to the top of the FTSE leaderboard with a gain of 304, or 25.65 per cent, to 1,489 helped by the strong performance of the Nasdaq overnight and an upgrade from Morgan Stanley Dean Witter.
The broker lifted its recommendation to 'strong buy' from 'neutral' and set a £22 target price. Morgan Stanley was also behind the gains of CMG, up 119 at 5,105. It upgraded its stance on the company, which recently unveiled a WAP deal with Vodafone, to 'outperform' from 'neutral' and set a £60 target. Logica was another stock to benefit from the Vodafone connection. Its shares shot up 257 to 2,345 after CSFB lifted its target price on the stock to £24 from £21. Like CMG, one of Logica's largest markets is telecoms and earlier this week it also unveiled a new product range.
Misys
Misys, the financial and healthcare software group, announced that against a background of continuing strong prospect in the Banking and Securities Division, there had been a marked pick up in order intake, beginning in the latter part of the calendar year. E-commerce related product development expenditure in this area is already at a significant level and is set to grow substantially as a proportion of R&D expenditure.
In the Healthcare Division, there is more recent evidence of a further improvement in prospect lists across all product areas, confirming Misys' view that the pick up in orders in this division is running three to six months behind the Banking and Securities Division. However, customers, particularly larger ones, have been understandably cautious surrounding the millennium and remain so ahead of the leap year date; this may hold back the rate of progress in the second half.
Continuing strong organic growth in the Insurance Division, together with the acquisition of FOG, should ensure further good progress in the second half. In the Internet Services Division, the rate of investment is set to increase. Additional products will continue to be brought on stream and within the next few weeks, the general insurance service should be available on digital television. The Independent Financial Advisors (IFA) portal is expected to be in pilot shortly, with the launch of a series of releases to the IFA community within the next three months.
Misys claims that costs have been tightly controlled during this abnormal period, with a considerable reduction in the number of contract staff, and a further concentration of R&D resource in lower cost regions.
In Banking and Securities, the principal goals are the retention of existing customers, the reduction of the costs of operations and the enhancement of cross selling opportunities. Expenditure on customer relationship management is therefore expected to be a priority. The successful implementation of systems, facilitating the integration of channels to market, is also becoming a priority where the provision of consistent information and response to a customer, no matter which channel is accessed, is key.
The Groupe SIP acquisition, specialising in products for private wealth management, is a sector where growth prospects are strong. Examples of current important R&D projects in the e-commerce area include the development of a multi-media web call centre for private wealth management customers to access their investment portfolio via the Web; projects with specific customers to deliver Internet share trading solutions; and developments which will allow banks to integrate all data they have on a client, enabling them to offer tailored products and services. Now that the additional demand caused by the euro and Y2K has passed, Misys expects a more stable, but very healthy, pattern of market growth, and remain confident of achieving long-term organic growth rates of around 20 per cent p.a. for the division.
Meanwhile, the ambulatory physician practice market provides tremendous opportunity for growth at Misys' Medic. Increasing confidence in this very large market sector should further underpin demand. Medic is well placed to take advantage of such developments.
In the insurance market, continued consolidation is expected, particularly in the IFA sector, which should provide Misys with further opportunities for growth and enhanced market share. This, combined with the imminent launch of the IFA and consumer portals for e-commerce, should provide Misys with a pivotal position in the distribution of personal financial services products. With the acquisition of FOG and the healthy increase in new IFA members, the division is well placed to take advantage of the continuing strong growth in demand for personal financial services products. There are broader opportunities under consideration for web based e-commerce infrastructure services for the general insurance sector.
Misys IFA portal is expected to be in pilot phase shortly. The service will be launched during the current financial year, and will evolve into a comprehensive service for the whole Life and Pensions industry. The consumer portal is scheduled to go live in the first half of the next financial year. The strong prospect list, and current higher level of activity with Misys customers, bodes well for trading once the effect of the millennium and the leap year date are firmly behind.
Misys reported that there has been a marked increase in orders placed by financial institutions for systems to go live (in the first half of calendar 2000) after the lock down period is ended, and it has seen a further encouraging growth in an already excellent prospect list.
Arm Holdings
Arm Holdings, the chip designing group, reported an 84 per cent increase in pre-tax profits to £18.8 million on a turnover of £62 million for the year to December 31. The board of the company is expected to propose at the AGM on 18 April 1999, a sub-division of its ordinary shares on the basis of five for every one held. The group's chairman claimed that unit shipments in 1999 saw a further increase in unit shipments of ARM Powered silicon chips by Arm's licensed partners.
For the four quarters ended September 1999, 131 million units were shipped, compared to 32 million units for the corresponding period in 1998. Arm's estimate for the calendar year 1999 is approximately 175 million units compared to 51 million units for the calendar year 1998.
Arm also announced the industry's first family of ARM Powered Ericsson Bluetooth cores, optimised for advanced system-on-chip designs. Under this agreement, ARM and Ericsson are conducting joint product development activities enabling ARM to capitalise on Ericsson's industry leading Bluetooth technology while allowing Ericsson to benefit from ARM's experience of development, supply and support of re-usable intellectual property.
Arm's product development has continued apace with the development of multiple versions of ARM7TM and ARM9TM families of microprocessors in both synthesisable and hard macrocell implementations. In May 1999 Arm introduced the ARM9ETM processor core.
On the corporate developments front, Arm Holdings now has more than 14,000 shareholders compared to approximately 1,000 a year ago, with financial institutions in Europe and the United States accounting for over 80 per cent of the shareholding, Apple Computer six per cent and employees approximately six per cent. 2000 has started well as Arm has signed one agreement for an ARM940TM core with an existing partner and other agreements in the pipeline. The group has seen a recent increase in publicly announced entrants to the microprocessor market and in view of the high growth potential of this market, it is likely that more will occur in the future.
Please note that the value of investments, and income (if any) yielded by them, may fall as well as rise, and you may not recover the full amount of your original investment. Past performance is not necessarily a guide to the future
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