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The Market
Leading shares on Friday ended strongly, closing at near their peaks for the day by shaking off an earlier subdued showing, as Wall Street surged following the release of lower-than-expected US private non-farm payrolls. At the Friday close, the FTSE 100 index was 77 points higher at 6,497.5, just off a high of 6,502.6 for the session, and well above its early low of 6,390.2. All the broader indices were in positive territory, with the FTSE 250 index rallying after earlier falls to close up 22.8 at 6,626.6. Volume in London was slim, with 1.329 billion shares changing hands in 89,584 transactions.
UK blue chips had started the Friday session slowly, with a moderate upturn in tech stocks balanced by falls in new economy. Enthusiasm was tempered because of the complete lack of corporate news, along with the alternative attraction of the tennis at Wimbledon. Most shares drifted lower as the morning progressed, with the telecom and technology issues well off highs as Nasdaq was indicated to open lower.
By Friday lunchtime, the FTSE 100 index was down around 20 points, as a shift towards financials and perceived "safe" technology stocks failed to enliven the index, with overall trade remaining lacklustre as dealers would not risk taking positions ahead of the US data. As it turned out, the private non-farm payroll data was lower than analysts had expected, showing non-farm payrolls rising by 206,000 in June from the previous month - well below a consensus estimate of 250,000. This led to both the DJIA and the Nasdaq to surge when the markets opened.
By London's close, the DJIA was up 141.43 points at 10,622.54, while the Nasdaq index was ahead 76.68 points at 4,037.25. London saw financials and telecoms infrastructure stocks in highest demand. Schroders led the risers, up 114 pence to 1,240 pence as the financials sector bounced back from a recent bout of selling off after negative broker comment ahead of the upcoming UK banking results season. Standard Chartered was up 31-1/2 pence up at 855 pence, closely followed by Halifax, 17-1/2 higher at 559. Lloyds TSB also gained 20-1/2 pence at 609-1/2 pence, and Woolwich added 7-1/2 pence to 268-1/2 pence.
The rally in technology and media stocks continued to close, aided by the positive opening on the Nasdaq. Marconi advanced 74-1/2 pence to 960 pence in line with the Europe-wide trend in telecoms equipment vendors, after a Lehmans note was positive of the sector. Meanwhile Cable and Wireless gained 40 pence to 1,230 pence during its AGM, which failed to shed any light on the persistent rumours surrounding a possible take-over bid for the company from Deutsche Telekom.
Telewest was a focus in afternoon trading, advancing 6-1/2 pence to 234 pence, after the European Commission said it will not take any further action against Microsoft, following a pledge to limit its investment in Telewest to a minority and break all links with Liberty Media.
But BSkyB headed south by 38 pence at 1,255 pence to top the blue chip fallers, following reports that Vivendi chairman Jean-Marie Messier is warning that he may sell his 20 per cent stake in the company if he is not given an active role in Sky Digital and control of interactive services management.
Meanwhile, a bounce carried IT services companies higher. Logica reversed the previous day's selling to firm 70 pence at 1,590 pence, while CMG pence was 37 pence higher at 988 pence. Old economy stocks were less positive by the end of the session. Marks and Spencer was lower by 7 pence at 233 pence after WestLB Panmure reiterated its "underperform" recommendation, and ABN Amro advised to hold after a meeting. BAT was off by 10 pence at 438, shrugging off ABN Amro's view that it is "undervalued", as the brokerage repeated a 700 pence price target conditional on their exit from the US market, and the buying of Gallaher.
The second string techs replicated their top-line counterparts. Flat-speaker licencer NXT soared 50 pence to 1,095 pence after it agreed a licencing deal with Matsushita, while Geo Interactive held onto a 47-1/2 pence rally to 1,115 pence, as initiation of coverage from CSFB with a 4000 pence target buoyed the stock. Baltimore was higher by 21 pence to 516 pence as soothing broker comment was issued after the profits warning from its US rival Entrust, while Eidos was higher by 15 pence at 495 pence as Infogrames made non-commital statements about its rumoured take-over approach on the company.
On the downside, the FTSE 250 fallers were led by IT services group Diagonal, which fell 15 to 330 ahead of its interim results this month. Diagonal's shares are now less than 30 pct of their peak in March. Williams De Broe commented in a results preview that it believes Diagonal's resourcing business has "suffered significantly", and the continued uncertainty regarding IT expenditure will impact its full-year forecasts. Elsewhere, QXL.com reversed earlier gains to shed 2-1/2 at 79 after a PriceWaterhouseCoopers study warned that a third of Neuer Markt-listed internet companies risk running out of money within three years. Ricardo.de - currently being acquired by QXL.com - saw its Neuer-Market-listed shares fall euros 6 at euros 39.00 in reaction. The PWC report had warned that eight companies were in danger of going bust soon, but did not identify individual firms.
UK Smaller Cap stocks ended the week at their highest intra-day level, excited by a raft of corporate news, as investors returned to the market with confidence after the release of weaker-than-expected US private non-farm payrolls. The FTSE Small Cap features closed at 3,373.6 points, up 7.3 points, in tandem with the wider FTSE indices.
Character Group slipped back from the top spot on the Smaller Caps leaderboard, but retained 12-1/2 pence at 101-1/2 pence on the twin benefits of Chicken Run and Orange's purchase of Ananova, while YJL benefited from the sale of Birchwood Concrete Products for £8.5 million in cash - shares advanced 2-1/4 pence at 17-3/4 pence.
Biotechs remained in favour, with Oxford Molecular 3-1/2 pence higher at 29-1/2 pence after revealing it is to sell its loss-making Discovery Solutions division to Millennium Pharmaceutical Inc. for £35 million, £33.5 million of which will be in cash. Alizyme also firmed, putting on 9 pence at 110 pence following news it has completed Phase 1A of the clinical trial for its obesity drug, ATL-962.
National Power
National Power, the electricity generation and supply group, reported a 21 per cent decline in pre-tax profits to £452 million for the year to 31 March. Although demerger day is a few months off, National Power has already separated its businesses and installed new management teams. It has written down the value of its assets in its balance sheet and is going forward with a clean slate.
Npower, the UK operations looks more comfortable as exposure in generation has been greatly reduced and a large electricity and gas retail customer base has been acquired. The likely output from the UK generating portfolio has been fully hedged for the next two years. National Power has successfully sold three major generating stations comprising 6,650 MW, some 43 per cent of its capacity. The sales achieved total proceeds of approximately £2.8billion and exceptional gains on disposal of £1.3billion.
Meanwhile, sales of electricity through the Pool fell by around 10.5 TWh to 48.3 TWh, and market share was 16 per cent, down from 20 per cent. Excluding Drax, Eggborough and Killingholme, generation from the remaining portfolio was 22.6 TWh, down only 1.1 TWh on the previous year. Plant availability and performance was once again good. Average realised prices of electricity rose slightly despite a seven per cent fall in average Pool prices, while fuel costs fell by five per cent to 1.18 p/Kw/h.
On the retail font, National Power has reported rapid progress in the integration of the Midlands Electricity supply business, Calortex and Energy Direct. It has launched Npower, its national brand, cut its costs of supply, recruited experienced and able marketing managers, and increased the number of sales agents. Consequently, last summer's net losses of customers have been halted and the business is now a net gainer of customers. Profit margins per customer have increased, the cost of managing customers has fallen, the performance of its sales agents has risen, and the cost of gaining a new customer has been reduced. A sound platform has been created for a national multi-product retail business.
On the International Business front, the year saw a substantial recovery in international earnings. This recovery reflected both continuing good operational performance by existing assets, and significant earnings from newly commissioned or acquired assets. Capital expenditure of £1,406 million was committed to new projects during the year. Business support and development costs were reduced to £57m from £79m, reflecting the more focused approach to development activities.
National Power announced a substantial expansion of its interests in the USA, increasing its commitments to around $1.9 billion in this important market. These projects will give International Power, which will concentrate on foreign generation projects, earnings from a total of around 4,400 MW of fully operational CCGT plant in the USA by the middle of 2002.
Demerger is scheduled to be effective on 2 October 2000, subject to shareholder approval and the approval by the UK Listing Authority and the US Securities and Exchange Commission of formal documentation and the listing of Npower. Following demerger Npower will be a major, integrated UK energy business comprising a generation and trading business with a flexible, cost efficient portfolio of around 8,000 MW of UK gas, coal and oil fired generating plant, a leading energy trading capability and a competitive supply of fuels.
Meanwhile, as a result of the demerger, International Power will have a strong position in developed trading markets, complemented by a portfolio of assets in developing markets. It will comprise 10,506 MW (net) of plant operational and under construction of which 4,415 MW will be in the US, 2,645 MW will be in the western Mediterranean and Europe, 1,650 MW will be in Australia and 1,796 MW will be in the eastern Mediterranean and Asia. It will also comprise a number of projects at an advanced stage of development and a full set of resources to play an active role in all phases of the power generation value chain, including development, construction and operations.
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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