investors' corner
The Market
Leading shares closed a dull pre-Easter Thursday session firm but well off their highs, weighed down by a mixed showing in New York at the opening bell and fears, following strong UK data that a hike in UK interest rates in the near future is almost inevitable. The FTSE 100 index was 56.3 points higher at the close at 6,241.2, off its session peak of 6,248.1 shortly before close on Thursday, but above its morning low of 6,134.4.
The broader FTSE indices were also in positive
territory, with only the TechMARK, which has seen a volatile performance throughout the day, bucking the firm trend down 23.58 to 3,538.73 on the back of continued Nasdaq uncertainty. Volume was an uninspiring 1.162 billion shares in 68,982 transactions, with trading tailing off late in the day as traders and fund managers headed off early for the long weekend.
Overnight, the Dow Jones Industrial Average (DIJON) closed down 92.46 at 10,674.9, while the Nasdaq composite index closed down 87.16 at 3,706.41, with both indices hit hard by a hefty sell-off in IBM and Intel shares. Once again the ebb and flow of sentiment for telecom, media and technology issues was the dominant force in the market, reflecting Nasdaq's roller coaster ride during the week. But the "new economy/old economy" split, which has been so evident in recent sessions, seems to have begun to blur as traders search for good "quality" plays in whatever sector at the lower levels.
This renewed buy interest, albeit selected, quickly helped to push the FTSE 100 index back into positive territory. But the market quickly went into reverse when the stronger-than-expected UK March retail sales and M4 money supply data highlighted the strength of domestic demand and re-ignited fears of an early tightening in UK base rates.
The data showed March retail sales on a seasonally-adjusted basis up 0.5 per cent from February, giving a 4.6 per cent rise year-on-year, well above the expected 0.3 per cent rise on the month and year-on-year increase of 4.7 per cent. M4 lending in March surged, showing the year-on-year percentage growth at its highest level since April 1991. This weaker trend was exacerbated by the FTSE 100 index series options expiry around 10.30 am, which saw many traders moving to close positions where they could. But the subdued morning session was quickly forgotten and the market resumed its upward path thanks to good post-result gains from drug heavyweights Glaxo Wellcome and SmithKline Beecham.
But mixed early progress on Wall Street brought UK blue chips back from their best levels, with Nasdaq reversing some modest opening gains and the Dow powering ahead on the back of a slew of positive earnings news. At the close, the DIJON was up 124 points, while Nasdaq was down a short 21 points as concerns over technology issues remained. Strong gains from soon-to-merge drug giants Glaxo Wellcome and SmithKline Beecham provided blue chips with their biggest boost, as encouraging first quarter results from both firms helped the FTSE 100 index to reverse a morning decline.
Extending earlier gains, Glaxo Wellcome shares added 56 pence to 1,958 pence, with SmithKline Beecham shares up 28 pence at 879-1/2 pence, after strong sales growth from both groups. Glaxo posted a return to strong sales and earnings growth after two years of disappointing numbers, with a first quarter sales figure of £2.125 billion, up 13 per cent from a year earlier. Meanwhile, SmithKline Beecham beat its own target for first quarter earnings growth, with a 15 per cent gain in underlying earnings per share for the first quarter. Sir Richard Sykes, Glaxo executive chairman, and designated head of the Glaxo SmithKline combination, also said that the merger is "proceeding smoothly" towards its completion in the summer.
BAT was a late winner, up 32 pence at 345-3/4 pence, boosted by late buying - thought to be by US traders, ahead of the holiday weekend. Elsewhere, '"quality" media and telecoms stocks attracted some fresh buying. Reuters stood out, up 67 pence at 1,125 pence, continuing to be supported by this week's solid first quarter results, and helped by the launch of a new internet delivery system. BSkyB gained 120 pence to 1,610 pence, Energis rose 161 pence to 2,912 pence, United News and Media added 25 pence to 791 pence, and Colt Telecom gained 199 pence at 2,809 pence.
Shares in UK smaller companies put in a firm but subdued performance on the last session before the long Easter break, ending modestly higher although they slightly under-performed the blue chip market with tech issues mixed on Nasdaq's further retreat in the afternoon, dealers said. At the close, the FTSE Small Cap index was 3.3 points higher at 3,118.7, just below the day's highs of 3,118.8, but also not that far away from lows at 3,114.1 after a tightly traded session.
Reflec was a star performer among the small caps, up 3.75 pence at 20.5 pence, as the market warmed to its deal with BBC Resources giving it the sole licence manufacturer of Truematte. Truematte is the BBC's patented system for chroma keying, the electronic replacement of background scenery for broadcasting. Truematte incorporates Reflec's patented reflective membrane, Chomatte, which it has developed in connection with BBC Resources.
Stentor was also a positive feature, adding 7-1/2 pence at 36-1/2 pence after nevada tele.com - a joint venture formed by Energis and Viridian - confirmed plans for a possible offer for the Northern Ireland-based group at a price of around 37 pence per share, valuing the firm at £45.8 million. nevada tele.com also announced that Co-Operation Retirement Benefit Fund, Stentor's majority shareholder has entered in to irrevocable undertakings to accept an offer for the around 39 per cent stake it holds at the indicated level. Stentor announced at the end of last month that it was in discussions which could lead to an offer for the group at a price which was then significantly below its ordinary share price.
Alliance Unichem
Alliance Unichem, the drug wholesale, distribution and retail group, reported an 11 per cent increase in pre-tax profits to £122 million on a turnover of £6.09 billion. The group had announced that it wants to become the leading healthcare distributor in Europe. The proportion of wholesaling business within the group has grown following the acquisitions in the Czech Republic and the full year effect of the consolidation of the Spanish business. This is reflected in the group operating margin, before goodwill amortisation, of 2.4 per cent for 1999.
Alliance Unichem's e-business activities have been organised into a new division, aggregating its existing technology assets and revenue streams, which is currently being managed by a specialist e-business venture capital company. The group has engaged an i-builder who is rapidly transforming the technology base of its existing businesses and a management team is being recruited. Alliance Unichem anticipates offering equity in this division to strategic partners, including providers of healthcare information and software components. However, this division will remain a subsidiary of the group.
Across the group Alliance Unichem has substantial and well established activities in technology which, when aggregated together, create a robust platform for future development. These businesses currently employ over 300 technology specialists and, on an annualised basis, earn current revenues of £25 million. Development costs to web-enable its existing technology assets, a part of which may be funded by equity contributions from strategic partners, are expected to be in the region of £20 million over the next two years.
Meanwhile the outlook for Alliance Sante France in pharmaceuticals is positive with expected growth in the range two to four per cent, taking account of the market constraints. Within this steadily expanding market Alliance expects to increase operating margins. The rationalisation of depots and administrative functions is to be carefully managed with consideration for the needs of its employees. Resulting cost reductions and efficiency gains, together with expansion in added value services for its clients, will allow Alliance to improve operating margins.
Alliance Unichem's Moss Pharmacy business trading stance and operational strategies continue to win market share in the UK, further assisted by its ability to acquire good quality retail pharmacies at acceptable prices. The company is actively pursuing other opportunities in Italy and elsewhere, and an international team has been established within Moss, drawing on the skills of its highly experienced UK development team.
The success of these strategies is demonstrated by an increasing operating margin. Alliance remains confident of further margin gains.
In Italy, Alleanza Salute forecasts that market growth in 2000 is expected to reduce slightly to about six per cent. Although competition remains intense and Alliance aims to continue to reduce working capital; further reductions will be achieved by operating improvements rather than by incentivising pharmacists with higher discounts. As a result, it expects to stabilise operating margins and improve returns through turnover growth and lower invested capital.
In the Czech Republic Alliance Unichem expects to take advantage of opportunities created by sector consolidation to increase its market share. It has embarked on a programme of rationalisation of warehouses and therefore does not expect a significant increase in margins in the next year or two.
The group continues to prosper by building on its strengths in existing markets and expanding into new territories. To strengthen this positioning, Alliance believes that it has the role to search for and develop new services that are of value to its manufacturer and pharmacy partners. This entails the development of businesses in related healthcare sectors such as information services, home-care and pre-wholesaling. Furthermore, Alliance Unichem intends to pursue further developments in this direction including significant e-business activities.
Following the group's successful entry into the Czech market, Alliance Unichem is studying carefully the rapid development of other markets in Eastern Europe and would be prepared to invest if market conditions and risk levels are satisfactory.
Pharmaceutical wholesaling demands the continuous improvement of margins. Consequently, Alliance Unichem can only deliver shareholder value through the implementation of its net strategy.
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.
| 
