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Investors Corner
The Market
Leading shares in London ended the week firmer, but below their
peak for the session as Wall Street put in a mixed early performance,
with the Nasdaq higher once again after some recent pleasant
tech corporate earnings surprises. At the Friday close, the
FTSE 100 index was 57.4 points higher at 6,276.3, well below
its midmorning peak of 6,294.5, but above a low of 6,210.3 registered
around 1pm. All the broader FTSE indices were firmer –
most notably the techMARK 100, up 122.80 points to 3,450.54
as the Nasdaq index extended its recent recovery. Volume was
a healthy 1.746 billion shares in 119,595 transactions, helped
by some futures and options expiries-linked activity.
UK blue chips bounded higher from the start on Friday, propelled
forward by the overnight surge on Wall Street and in Asia as
investors moved back in at the lower levels and the market reacted
positively to reassuring comments from Fed chairman Alan Greenspan
on crude prices. Telecom, media and technology (TMT) issues
once again were the vanguard of the FTSE 100 advance, reflecting
a near eight per cent leap by the technology-laden Nasdaq composite
index overnight after surprisingly strong earnings reports from
Microsoft, Nokia and Sun Microsystems.
Very robust after-hours figures from internet auctioneer eBay
also provided a lift, although sentiment was slightly undermined
by the increasingly cautious reaction to third-quarter results
from Ericsson of Sweden.
The London market also took comfort from a solid set of third-quarter
preliminary UK GDP figures, which showed an increase of 0.7
per cent in the third quarter – giving a year-on-year increase
of 2.9 per cent – although the growth was slightly less
than expected. The FTSE 100 index raced up to its high for the
day by 10.10am, helped too by factors associated with the futures
and options expiries across Europe.
But, after the “double witching” expiries, UK blue
chips drifted back from their highs, with a lack of any real
follow through interest, and some worries over possible profit
taking in New York at the restart creating some caution. Leading
shares dropped below opening levels over lunchtime, with the
FTSE 100 index hitting its low for the day at 12.55pm. But this
wobble was soon reversed, with UK blue chips resuming their
advance as the Nasdaq index was propelled higher from the start
once more.
Meanwhile, WPP Group gained 36 pence to 856 pence as Schroder
Salomon Smith Barney upped its rating to “outperform”
from the previous “neutral” and ahead of figures on
Monday. United News & Media put on 32 pence to 815 pence
as brokers reacted positively to performance update – Credit
Lyonnais Securities repeated “add” with an 865 pence
price target.
Tech and telecom stocks dominated the list of blue chip advancers
on the back of Nasdaq fresh gains. Logica topped the list of
FTSE 100 gainers, adding 215 pence at 2,020 pence, also helped
by news that Intec Telecom – with which it has a close
business relationship – has signed a licensing agreement
with Deutsche Bank’s T-Mobil. Marconi also saw good demand,
up 78 pence at 938 pence helped by the benefits of its Nasdaq
lifting, with Bookham Technologies rallying another 201 pence
to 2,569 pence, and CMG recovering after estimate downgrades
earlier in the week to add 80 at 1,130.
Freeserve, however, failed to join in the blue chip tech party,
with its shares losing 6 pence to 160 pence after confirmation
that it will be the stock demoted from the FTSE 100 index to
make way for Lattice, which is being demerged from BG Group
on Monday. Freeserve stakeholder Dixons shed 3/4 pence to 184
pence in sympathy. After a good run ahead of that demerger,
BG shares shed 5 pence to 420 pence – hit by a bout of
profit-taking. P&O, which will also undergo a demerger of
its Cruises business on Monday, saw its deferred shares fall
18
at 550.
Other “old economy” issues fell back on profit taking,
with Reckitt Benckiser down 30 pence at 890 pence, Rentokil
Initial off 4-1/2 pence at 150-1/2 pence, Marks & Spencer
down 5 pence at 170 pence, and recent FTSE 100 newcomer Canary
Wharf off 14-1/2 pence at 525 pence.
Celltech suffered after the Department of Health told doctors
not to issue polio vaccine produced by Medeva because of fears
it may be contaminated by Mad Cow Disease. Celltech sold Medeva
to Powderject last month – Celltech shares fell 26 pence
to 1,356 pence, while second liner Powderject shares shed 25
pence at 667-1/2 pence. Other drug issues ran in to profit-taking
despite good results from some of their US peers: SmithKline
Beecham fell 28 pence to 870 pence, merger partner Glaxo Wellcome
eased 57 pence to 1,940 pence.
Alliance Unichem
Alliance Unichem, the drug wholesaling, distribution and retail
group, reported that during the first half of this year it continued
to expand its retail activities both in the UK and continental
Europe with a net further 60 pharmacies added to the division
in the UK, 15 in Switzerland and entry into the Dutch market
via the acquisition of 14 pharmacies. In addition, in the UK
the group acquired the 57 shop Scholl chain of footwear and
chiropody outlets, and agreement has been reached with the Swiss
grocery retailer, Coop, to combine pharmacies with health and
beauty ranges in a new joint venture company trading under the
name Coop Vitality.
Development activity within Alliance Unichem’s
wholesale businesses has focused on rationalisation and efficiency
gains. Further automation projects have been implemented across
the group, and rationalisation of depots has continued, with
the consolidation of its warehouse network in the Czech Republic
following the creation of Alliance UniChem CZ. The implementation
of the pre-wholesale joint venture with Galenica Holding has
been completed, and the Group’s pre-wholesaling activities
have been brought under a single pan-European management team.
Following its launch in March, developments in its e-business
division have been rapid. The new management team has been assembled,
combining people from inside and outside Alliance UniChem. Using
expertise, software and people from Rx.com in the US, together
with technical support from netdecisions, a specialist internet
systems contractor, it has completed the technology development
for the initial launch of its web services.
Alliance Unichem has conducted extensive consultation programmes
among its pharmacy clients. These programmes, together with
further market research, have helped it design the range of
services to be offered through its web presence, and the overall
brand presentation, which will be offered under the name pharmology.com.
The group is currently developing the launch programme for pharmology.com
and anticipates introducing this service to its clients, initially
in the UK and in France, during the fourth quarter of this year.
In the first half of 2000, £1.4 million has been charged
to profit representing the cost of developing pharmology.com,
and Alliance expects to double this in the full year 2000. Pre-tax
profits for the period were up nine per cent to £61.2
million.
The markets in which Alliance Unichem operates continue to grow
strongly, driven by the changing demographics and the introduction
of more effective medicines enabling periods of hospitalisation
to be reduced. It expects these underlying long-term trends
to outweigh the effects of government action to control healthcare
expenditure.
Competitive pressures are a continuing feature of Alliance’s
operating environment but the group remains confident in its
ability to run efficient low-cost operations, while building
customer loyalty through targeted marketing initiatives, will
continue to deliver earnings growth. Equally, opportunities
for further growth may arise from selective acquisitions.
Williams
On 7 March 2000, Williams, the industrial conglomeragte, announced
its intention to create two separately quoted businesses to
be owned by Williams Shareholders: Chubb, which will be a leading
world-wide security services provider, and Kidde, which will
be a leading global supplier of fire and safety products, systems
and services. If the demerger proceeds, Kidde will issue Kidde
Shares to Chubb Shareholders on the following basis: For each
Chubb Share 1 Kidde Share. The proposed demerger is expected
to be effective on 13 November 2000 and shares in Chubb and
Kidde expected to start trading on 14 November 2000.
Chubb made further progress during the first half of the year
with overall sales increasing by 12.9 per cent, at constant
exchange rates, to £672.4million. This headline growth
is a combination of organic growth and acquisitions which have
strengthened Chubb’s geographic position and broadened
its service capability.
The Tesa Hardware business included in Chubb is conditionally
held for disposal, subject to US regulatory approval, and conclusion
of these arrangements is expected within the next 12 months
following adjustments to the supply arrangements for Tesa Entry
Systems. Chubb has recorded good progress in the first half
with the business expanding organically, geographically and
by adding more services to its offering. Similar progress is
expected in the second half.
A number of investments made in the first half which are expected
to reflect in improving profitability in the medium term. Following
the successful completion of the demerger process, management
is committed to review aggressively the central costs and to
establish a structure consistent with Chubb as an independent
public company. Overall, Chubb is well positioned to continue
its expansion and to consolidate its position as a leader in
the highly attractive security services industry.
For Kidde, sales in the first half of 2000 were £369.2
million. Sales growth was 14.1 per cent, at constant exchange
rates, of which approximately six per cent arose from acquisitions.
Organic sales growth was assisted by the recovery of carbon
monoxide detector sales in the USA following the depressed level
of sales in the first half of 1999. Significant progress has
been made in key areas and prospects for the second half are
good. Growth rates will be influenced by the performance of
the Residential and Commercial business in the peak last quarter
and by expenditure levels in the petrochemical market for fire
fighting products.
At this stage organic turnover growth levels are expected to
be similar to those achieved in the first half.
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