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On Friday, blue chips in London closed higher for a fourth consecutive session, extending the rally which started on Tuesday to 387.5 points, as Wall Street sparkled in the wake of a weaker-than-expected payroll report that showed inflation remains under control. With telecom heavyweights BT and Vodafone AirTouch chipping in with gains of 10.99 per cent and 4.08 per cent respectively, the FTSE 100 closed 55.4 points higher at 6,487.5, its highest level in six weeks. At that time the Dow Jones Industrial Average and the Nasdaq were both higher, up 215 and 114 points respectively, after US non-farm payrolls rose 43,000 in February, below forecasts for a 206,000 rise, and the jobless rate rose to 4.1per cent against a forecast of 4 per cent.
Over the week, the FTSE 100 gained 289.5 points. The broader indices also continued to shine. The FTSE 250, 99.8 points stronger at 6,776.6 points, the FTSE Small Cap, 59.2 points better at 3,481.1 points, and the techMARK 100, up 151.4 points at 6,604.17 points, all finishing the week at all-time closing highs. Provisional market turnover by recent standards remained modest, reaching 1.8 billion in 142,673 transactions by 4.43 p.m. on Friday Vodafone AirTouch (307.89 million) was once again the most actively traded issue.
BT carried the FTSE 100 higher, delivering 38 points of the FTSE 100's gain, on hopes the group might try to crystallise, via flotation, the value of its internet-related operations and investments. The spark for these gains was the performance of France Telecom yesterday, which surged 25 per cent after the company said it might seek a separate listing for its Wanadoo unit, France's leading internet provider. Press reports suggested BT was considering spinning off BT Cellnet, its mobile phone unit and Yellow Pages, in order to stave off a bid from an overseas predator.
BT was also lifted by confirmation that Trade & Industry secretary Stephen Byers has dropped the telecoms industry from his flagship utilities bill. The bill is understood to have met with resistance in Downing Street, where there was support for claims from 25 telecom companies that it would stifle innovation and be a step backwards for e-commerce. Over recent months, BT has had a number of run-ins with the regulator. The most notable spat was over the unbundling of the local loop - the last mile of copper wire that runs to homes and business. BT is due to allow other telecom operators access to its network of local exchanges and copper wire in July, but Oftel director general David Edmonds wants to push that timetable forward by 2-4 months.
Other prominent risers in the sector included, FTSE heavyweight Vodafone AirTouch, up 14-1/2 pence to 369-1/2 pence, Energis, 145 pence better at 3,547 pence, and Colt Telecom, a riser of 141 pence to 4,048 pence. All were boosted by ongoing consolidation talk, with Qwest reported to be actively considering the Deutsche Telecom approach. However, this news unsettled Cable & Wireless, down 14-1/2 pence at 1,471-1/2 pence, long as potential take-over target for the German telecoms giant.
Telecom equipment maker Marconi - previously know as GEC - was also in demand, gaining 27-1/2 to 921-1/2, on suggestions from CSFB that a re-rating may be due. CSFB rates the stock a 'buy' and has set a 1,025 pence target. But BAe Systems, which acquired GEC's MES arm last November, fell back 9-3/4 to 315, despite a raft of positive comment on its robust full year figures, hefty dividend and strong order books going forward. Dealers blamed the switch to 'new economy' stocks as the key to the weakness.
Tech stocks saw a resurgence of interest as Nasdaq's upward rampage continued. Sema Group, up 105 pence at 1,716 pence, led the charge, followed by Misys 13-1/2 pence higher at 1,055 pence. ARM Holdings added 86 to 4,931 as a stock overhang - thought to be around 1 million shares - was finally cleared, and ahead of an embedded chip conference in Chicago.
Media stocks were also lifted by the strong performance of the Nasdaq. BSkyB advanced 98 pence to 1,933-1/2 pence and Pearson added 112 pence to 2,303 pence, ahead of full year results on Monday, at which chief executive Marjorie Scardino is expected to flesh out the group's internet plans. In January, Pearson announced that it would spend £250 million on web investments over the next two years, with the majority flowing into the FT.com site. Strong full year figures and a promise that it will consider returning cash to shareholders lent support to Schroders, up 68 pence at 1,300 pence. Following the sale of its securities arm to Salomon Smith Barney, Schroders will have around £1 billion of extra capital.
Meanwhile, Kingfisher rose 18-1/2 pence to 561 pence as the market digested news from French internet provider Libertysurf that the IPO price range values the company at Euros 2.990-3.521 billion. Kingfisher owns a 45.5 per cent stake in the French business.
Cyclicals, which have enjoyed some limited buy interest over recent weeks, fell back under pressure as attention switched back to the more "sexy" telecom and high tech sectors. Whitbread was a major faller, down 24-1/2 pence at 5103-1/2 pence, as followers worried that a Heineken bid for the Bass, off 25 pence at 709 pence, brewing arm could signal the demise of Whitbread's own tie-up with the Danish group.
Trading in Hays remained cautious ahead of next week's figures, with the shares losing 43-1/2 pence to 388-1/2 pence. Meanwhile, the rout in Rentokil Initial continued, down a further 6-3/4 at 150-1/4, as the fallout from this week's very weak figures continued. Several leading brokers turned more cautious on the stock in the wake of the results.
Outside of the leading index, Shire Pharmaceuticals stole the top spot, up 158 pence, or 14.26 per cent, at 1,266 pence, after the first regulatory approval for its galamantine product, known as Reminyl, in the EU from Sweden. Reminyl is a symptomatic treatment for dementia of the Alzheimer's type. The hope is the move will be a precursor for regulatory approval throughout Europe.
Alliance & Leicester
Alliance & Leicester, the banking group, reported a 10per cent increase in pre-tax profits to £ 500 million for the year to December 31. The group's cost:income ratio improved during the year to 53.5 per cent against 55.8 per cent in 1998. Within Mortgage Lending & Investments the cost: income ratio improved to 41.6 per cent in 1999 compared with 43.4 per cent for 1998, and has fallen from over 54 per cent in 1995. Effective cost control remains a key group priority, and Alliance & Leicester is vigorously pursuing fresh opportunities for cost-cutting and efficiency gains, including further outsourcing where this can add value.
Alliance & Leicester's CEO argued that the power of the group's brand is an important strength on which to build future business. He added that there is clear evidence from independent market research that awareness of the Alliance & Leicester brand is higher than for a number of its larger competitors, as is the number of potential customers who consider Alliance & Leicester as a potential provider of financial services for their own needs.
Furthermore, the group is well-placed to exploit the potential of new delivery channels, in particular the internet. The banking group plans to launch a stand-alone, internet-only, operation which will ensure that customers who want a technology-based relationship with Alliance & Leicester can have one. Meanwhile, the development of its core businesses is expected to continue during 2000, as will the process of diversification where profitable opportunities exist to broaden the range of services that it offers and to increase revenues.
Alliance & Leicester remains determined to manage its mortgage business to generate shareholder value, by ensuring that its pricing, while competitive, is at profitable levels. It will continue to focus on improving its cost performance in this business so that profitable products can be offered.
The banking group is also structuring its administrative operations so that common processes can be delivered from efficient centres of expertise across the range of its retail banking products. This re-engineering of its business will lead to more efficient processes and improved customer service. Examples of this approach include the centralisation of arrears and collection activities and the introduction of common application processing for different products.
In addition, Alliance & Leicester is developing its channel integration strategy to enable customers to do business with Alliance & Leicester in the ways they want to, not by imposing a single solution on them.
Alliance & Leicester's Girobank future growth is continuing to build on its core competencies in cash transmission, its focused sales force, and by developing the range of its services for corporate customers. Alliance & Leicester Group Treasury is developing a plan, and it expects to see further controlled growth in the Treasury contribution to group earnings in the years ahead. The diversification of the investment portfolios continues, with good growth in the holdings of mortgage backed and floating rate securities. Work is also underway to improve further the risk management and systems infrastructure needed to support the planned development of the business.
Business volumes and profits have increased in key product areas and Alliance & Leicester maintained downward pressure on costs, leading to a further significant fall in its cost: income ratio. Meanwhile, with just a year left of its statutory protection from take-over, analysts think the bank would fit nicely with one of the larger players.
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.
James Dimech DeBono is a qualified accountant with a strong academic background in quantitative financial economics and a keen interest in investment management. He can be contacted by e-mail: JamesDebono@CompuServe.com
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