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On Friday, leading shares closed the week higher, but disappointingly below the key 6,600 level as a drab performance from Wall Street sparked a late flurry of profit-taking. Nevertheless, the FTSE 100 gained 81.2 points over the week and closed at its highest level since 17 January. At the Friday close, the FTSE 100 was up 36.6 points at 6,568.7, having touched 6,642.5 earlier in the session. The bulk of the gains came from BT and the three blue chip pharmaceutical stocks - AstraZeneca, Glaxo Wellcome, SmithKline Beecham.
All the broader indices closed higher, with the techMARK 100 the stand out feature, up 119.8 at 5,719.00. Meanwhile in New York, the Dow Jones Industrial Average, which rose 80 points early in the session, was up 10 points, while the Nasdaq extended yesterday's record breaking gain, rising 44 points. Provisional market turnover at the official Friday 4.30pm cut-off point was 1.6 billion. BT, up 36 pence at 1,351 pence, led the FTSE 100's advance, as analysts and investors continued to warm to its new mobile phone strategy - which will at one sweep transform the telecoms giant into a more aggressive web player. Morgan Stanley was a fan, lifting its rating on the stock to "outperform" from "neutral". The heavyweight pharmaceutical index provided the other main upward impetus.
Glaxo Wellcome climbed 48 pence to 1,612 pence, SmithKline Beecham firmed 30 pence to 739-1/2 pence, and AstraZeneca gained 160 pence to close at 2,486 pence. Yet it was news of key management changes that really made the headlines. Sainsbury topped the FTSE 100 leaderboard, adding 22-3/4 pence, or 9.52 per cent, as the supermarket giant announced the departure of recent recruit David Bremner, who was in charge of supermarkets. New chief executive Peter Davis will take day-to-day control of the supermarket chain.
British Airways was also in demand on news of the departure of its chief executive, Bob Ayling, adding 6-1/4 pence to 299-1/4 pence. The airline said its chairman Lord Marshall is to take on the additional role while the group searches for a new chief executive. Analysts pointed out that Ayling's departure has long been a subject of speculation, with many institutions calling for the chief executive's resignation following the poor performance from the blue chip airline group over the past year.
Other prominent risers included Lloyds TSB, up 34-1/2 pence at 551-1/2 pence after Warburg Dillon Read upgraded the stock to "buy" from "hold" in a review of the banking sector. Meanwhile, Kingfisher put on 8 pence to 523-1/2 pence ahead of next week's initial public offering of shares in French internet provider LibertySurf SA, with analysts valuing Kingfisher's stake at anywhere between £720 million and £2.8 billion. Assuming the shares are placed in the indicative price range of Euros 35.5-41.0, Kingfisher's 45.5 per centstake should be worth something in the range £720-830 million, or 52-60 pence per Kingfisher share.
Rio Tinto, 21 pence better at 925 pence, was another strong performer helped by a "strong buy" recommendation from Deutsche Bank. The broker reckons the recent de-rating of the stock - Rio shares fell 40 per cent from their peak price of 1,495 pence - is unjustified, especially as commodity prices have remained relatively good.
BOC was active, up 27 pence at 1,161 pence after Air Liquide and Air Products were forced to extend their offer for the UK group following delays to the divestment schedule that the FTC is demanding in order to wave through the deal.
On the downside, four of the five worst performing stocks were those relegated from the FTSE 100 at Wednesday's quarterly review. Wolseley was the worst affected, dipping 27 pence to 270 pence, closely followed by Hanson, off 31 pence at 349 pence, Scottish & Newcastle, 22-3/4 pence weaker at 355 pence, and Whitbread, down 27-1/2 pence at 457-1/2 pence.
Elsewhere on the downside, National Power lost 15-3/4 pence to 318-1/2 pence after Morgan Stanley slashed its fair value and earnings targets for the stock. Outside the leading index, NXT took pole position rising 255 pence to 2,215 pence, following an upbeat presentation at broker Teather & Greenwood. Easynet Group gained 272-3/4- pence to 2,950, boosted by fund raising and European network expansion news, which accompanied solid full-year results. Airports operator TBI fell 10-3/4 pence to 59-1/2 pence after the group warned of poor trading at a number of its airports.
Smaller company shares ended the week at record high as dotcom fever continued to drive stock prices higher. At the close, the FTSE Small Cap index was 30.7 points
higher at 3.565.7, outperforming all the other FTSE indices with the exception of the high-flying techMARK. Yet events outside of the FTSE Small Cap index were the main talking point of the session. Geo Interactive shot up 980 pence to 3,525 pence, and BATM Advanced Communications soared 1,067-1/2 pence to 6,317-1/2 pence, as both benefited from a controversial FTSE International rule change.
Glaxo Wellcome
Glaxo Wellcome, the pharmaceutical giant, reported that this is an invigorating time for SmithKline Beecham and itself as they begin to put in place the framework for their merger. Both executive teams are working hard on the integration planning process and they are looking forward to the tremendous opportunities that the merger will create.
During 2000, they expect to pass a number of key
product milestones and there is much to look forward to. Seretide, for asthma, has just been introduced in Spain and Glaxo is looking forward to launching it in the key markets of Italy and France. In the US, where it will be known as Advair, Glaxo recently received an "approvable letter" from the FDA, and expects to launch it in the third quarter this year. Lotronex for irritable bowel syndrome was approved in the US last week and the company is well prepared for the launch of this exciting product in mid-March. As a result Glaxo expects its gastro-intestinal therapeutic area to return to growth during 2000.
The US regulatory application for the triple combination HIV treatment Trizivir has been granted priority review status by the FDA, and the company expects to launch it in the second half of this year. Looking further ahead, the Phase III clinical trials programme for compound 745, the treatment for benign prostatic hyperplasia, is nearing completion and Glaxo expects to make regulatory filings in the middle of the year. Results from Phase II trials with compound 570, the novel treatment for type II diabetes, are encouraging and will be presented at the American Diabetes Association meeting in June. A comprehensive Phase III clinical trials programme for 570 is underway and Glaxo anticipates making regulatory filings towards the end of next year.
The accelerating growth of the business, combined with the forthcoming launch programme for Galaxo's new products, provide the company with an excellent platform to deliver strong, sustainable growth in 2000 and beyond. In addition, the integration of Glaxo Wellcome and SmithKline Beecham, to form Glaxo SmithKline, provides excellent opportunities for the future.
Compared with expectations a year ago, Glaxo Wellcome has emerged more slowly from the effects of the Zantac patent expiry. However, as predicted at the half-year, group sales growth improved in the second half of 1999. Growth was six per cent during this period compared to four per cent during the first half of the year.
Glaxo Wellcome remains the leader in asthma products with a 31 per cent share in the global market. Growth in the viral infections area was fuelled by strong growth of 26 per cent in the group's HIV portfolio, with growth accelerating in the second half of 1999. In the herpes area, strong sales growth of Valtrex, notably in the US, France and Italy, more than offset a modest decline in sales of Zovirax due to generic competition. Despite the competition from generic Acyclovir, Glaxo Wellcome remains the leader in the global herpes market with a market share of 49 per cent.
The group's influenza treatment, Relenza, has been launched in North America and in West Europe markets and approval has been received in Japan. In the UK, the National Institute for Clinical Excellence issued guidance discouraging the prescribing of Relenza under the National Health Service until more extensive data on the product becomes available. Zeffix, for the treatment of chronic hepatitis B, was launched in a number of markets in 1999 including Europe and the US. Nevertheless, the principal markets for the product are in Asia Pacific where it was launched in Korea in May 1999 and in China and Taiwan later in the year.
Growth in the oncology area was driven by Zofran and in particular by the orally disintegrating tablet (ODT) formulation launched into the US market in 1999. Glaxo Wellcome leads the global anti-emesis market with a share of 45 per cent.
During the latter part of 1999, Glaxo Wellcome announced a restructuring of its manufacturing operations, with the objective of optimising capacity utilisation and improving factory-to-market lead times along the group supply chain. The productivity gains in manufacturing performance, from rationalisation and in procurement are expected to deliver savings of some £370 million per annum up to 2003. The costs of the restructuring over that period will be some £520 million. Implementation of the plan has already commenced and costs of £197 million have been recognised in the second half of 1999.
The group's operating companies namely in Asia Pacific and Latin America, and also Russia, continue to be affected by adverse economic conditions. The group's policy is to invest for the long-term and thus remains committed to these markets. However, Glaxo stated that there is to be little further activity to be reflected under associates and joint ventures other than further profits on disposals. The group expects that future operating cash flow will be sufficient to fund its operating and debt service costs, to satisfy future capital expenditure and other commitments and to permit some repayment of short-term debt.
Analysts believe that Glaxo is a sound long-term
investment.
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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