AstraZeneca reached a four year high after its key asthma drug gained regulatory approval. Whitbread climbed on bid hopes, and a relief bounce aided Vodafone. Those stories, and yet more speculation about the future of internet gambling in America, provided the boost for London's top stocks.
The FTSE 100 index closed ahead by 114.2 at 5833.9, more than recouping the previous two session losses to reach its best level since July 12. The FTSE 250 firmed 109.3 at 9223.5 as forecast-beating results from IG Group and more bid theories outweighed negative trading news at GCap.
Across the Atlantic, the Dow Jones Industrial Average jumped as much as 151.2 to 11019.6 in reaction to takeovers both fact and reported, most of which involved buyout firm KKR.
A private equity consortium including KKR agreed a $21 billion deal for hospital operator HCA, one the largest ever leveraged buyouts. Separately, KKR confirmed it is in exclusive talks to buy France Telecom's majority stake in directories unit PageJaunes, and was reportedly part of a consortium looking to buy the semiconductor unit of Philips Electronics for $4.2 billion.
There were a few deals not involving the barbarians, the pick of the bunch being Advanced Micro Devices' agreement to buy graphics card maker ATI Technologies for $5.4 billion in cash and stock.
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Drugs companies were in demand on both sides of the Atlantic after both Merck and Schering-Plough reported earnings that beat analysts’ estimates.
AstraZeneca led the sector in London, climbing £1.21 to £33.15 after the US regulator approved its Symbicort drug for asthma maintenance therapy for patients over 12. The FDA, which typically takes between 18 months and two years to pass an inhaler, took just 10 months to give it the green light.
Neither the company nor the City expected Symbicort to be approved so early, meaning Astra will not have sufficient supplies available to launch before the middle of 2007. (Analysts had been split on whether the launch would be 2007 or 2008, and some considered the launch date a delay.)
GlaxoSmithKline, whose rival Advair drug holds a monopoly position in asthma treatment, spent most of the session in negative territory before rallying to close up 21p to £15.12. Both drugs makers release quarterly results this week.
"Asthma is a big volume market in the US with 100 million prescriptions filled last year, and the launch of Symbicort will be AstraZeneca’s first major US launch since Crestor in August 2003," said analysts at Ensklilda, which kept "buy" advice. A "reasonable sales estimate is $1 billion of Symbicort sales in the US by 2010 ... would add 1 percentage point to sales growth per year following the launch," it added.
Citigroup added: "This first major positive regulatory news for a while shows that AstraZeneca can do something difficult correctly, and will add to both rising consensus sales momentum in the key 2007-09 period and to share price momentum."
So what does it mean for Glaxo? The firm has been hiking Advair prices to compensate for slowing volume growth, which it will not be able to do when Symbicort provides an alternative.
US sales of Advair are estimated to have contributed about 8 per cent of the group's total sales in 2005, at £1.7 billion. But Advair targets a wider market than Symbicort -- the former can be prescribed for patients as young as four, and can be used to treat chronic obstructive pulmonary disease. It will likely take around three years for Astra to add COPD and child indications, by which time Glaxo's Advair will probably be facing generic competition.
JP Morgan said the Symbicort approval was "the first of a series of competitive hits, both branded and generic, facing Glaxo’s total US pharma business over the next two years." Its team, repeating "underweight" advice, forecast Glaxo's sales growth from the high margin US market to drop from 15 per cent in the current year to zero in 2007, then decline by 9 per cent in 2008.
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Elsewhere on the leaderboard, Vodafone advanced after its in-line quarterly performance figures took the edge off news that Bill Morrow, chief executive of its European division, has resigned for family reasons.
Citigroup was not pleased. "One of the reasons we have been backing the turnaround story with cost reductions in Western Europe was Bill Morrow’s proven ability to cut costs. Some also saw him as a CEO candidate," the broker told clients.
On trading, Vodafone's service revenue in Germany and Italy were both down 3 per cent because of new regulations on call termination, while churn rose 3 percentage points due to competition. The company reiterated forward guidance.
Vodafone shares rallied 4p to 115.25p. They were down 8 per cent in the two weeks before today's statement, and tomorrow's AGM when some leading shareholders have indicated they will be voting against chief executive Arun Sarin.
"There is room for a modest relief rally given the recent weakness in the stock, which we believe looks overdone," said Goldman Sachs, which stuck on a "neutral" rating. "The broader regulatory and competitive threats to pricing are still very much present but the company has held its discipline on margins so far."
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PartyGaming was top blue chip gainer as a story did the rounds on the City e-mail lists claiming the US Department of Justice had indicated its indictment of BetOnSports was part of a specific investigation, not a wider crackdown on the gambling industry.
The story, dated Friday and attributed to industry cheerleading web site EGaming Review, did not name sources. Still, it encouraged some traders to close short positions on gaming stocks.
PartyGaming took on 7.75p to 104.5p and 888 Holdings firmed 6.75p to 158p. SportingBet advanced 28p to 199p.
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Plumbers' merchant Wolseley firmed 33p to £11.12 after confirming the £1.35 billion purchase of DT Group, the leading distributor of trade materials in the Nordic region. This is Wolseley's first step into the Nordic region, where DT has a 10 per cent share.
Wolseley said the purchase improves the balance of its European coverage, which is currently dependent on the UK and France. The purchase price was 12.3 times earnings.
Read Wolseley's statement here.
SABMiller, the world’s No 2 brewer, was ahead 54.5p to 1029.5p after its Chinese affiliate put in place the second part of its expansion strategy by buying brewing capacity close to Shanghai.
China Resources Snow Breweries bought Yinyan Brewery for $42.3 million and took the Brewing assets of Xiangwang Brewery for $10.1 million. SABMiller owns 49 percent of CR Snow.
Analysts said that, while the move was strategically sensible, it was not financially significant. They saw today's price action as in anticipation of a trading statement covering SABMiller's fiscal first quarter, due July 28. Two days before that, Budweiser brewer Anheuser-Busch will reveal quarterlies, which analysts believe will highlight better pricing and improving industry volumes in the US, where Miller has been struggling.
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BG Group missed out, falling 14p to 696.5p after its second quarter earnings came in at £325 million on a clean basis, shy of the market consensus of £346 million.
The disappointment was in liquid natural gas, where operating profit was about half the expectation at £34 million because of lower spot volumes, higher costs and profit deferral after it sold £6 million of forward contracts, which will bank for £30 million early next year.
Read BG's statement here.
Whitbread gained 72p to £12.44 on word that Starwood Capital is in talks with advisers about launching a takeover bid for the UK group, worth at least £3 billion. Whitbread, which runs the Premier Travel Inn chain, last week announced the sale of 239 Beefeater and Brewers Fayre pub restaurants.
"At worst, this will put pressure on management to return at least £1 billion to shareholders by way of making non core disposals," said Panmure Gordon. Whitbread's current return programme stretches to £400 million.
US private equity firm Starwood also owns Societe du Louvre, the economy hotels chain, and was rumoured to be looking at UK chain De Vere, which was sold last month to property developer Richard Balfour-Lynn.
"Strategically, if confirmed, we would see the fit as the addition of Whitbread's Premier Travel Inn brand would give Starwood Capital a significant presence in the European economy hotel segment," said UBS. The firm's pubs and sports clubs businesses would likely attract "a line of bidders," it added.
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IG Group was lifted 13p to 215p after the spread betting firm posted annual profit ahead of its own guidance and gave a bullish outlook, saying there was no reason its strong growth should not continue.
IG's underlying earnings rose 51 per cent to £52.6 million, beating management's £50 million target, and said it started the 2007 fiscal year with 30 per cent more clients than a year earlier. UBS analysts raised their 2007 earnings forecast by 9 per cent, to 13.5p per share.
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Broadcaster GCap slid 16p to 197.5p, its lowest in at least five years, after warning that trade during the fiscal first quarter was weaker than expected. The company blamed the World Cup, which apparently hit radio advertising spend over the last two months.
Quarterly sales fell 6 per cent, or 3 per cent excluding Capital Radio, with July revenue diving 14 percent and tough trends expected to continue. The company, which also broadcasts XFM and Classic FM, said it was sticking with its new strategy of fewer, shorter ads on Capital.
Cazenove cut earnings forecasts by 36 per cent and 40 per cent for 2007 and 2008, moving to 6p and 6.1p respectively. The broker also noted that, on its numbers, GCap's dividend is uncovered by earnings from next year.
"Although we believe today’s downgrade is entirely due to a weakening market and as such is not caused by the new strategic initiatives we also believe it highlights our concern that the market changes are more of a structural nature," said the broker. "As such we prefer to maintain a cautious view on the near term outlook as we believe there is a significant risk that radio’s share of overall advertising budgets will continue to be under some pressure given the increased competition from online advertising."
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It was a similar story for ITV, where Charles Allen and Sir Peter Burt, the group's chief executive and chairman respectively, are under pressure to consider their position after the broadcaster's efforts to grow audience failed.
ITV1 has haemorrhaged viewers on Mr Allen's watch, leading to ad sales deteriorating by an estimated 9 per cent this year after a 3 per cent decline in 2005. While he has successfully negotiated lower licence fees from regulator Ofcom, his strategy of developing digital channels and non ad sales streams has yet to convince the City, as it has not compensated for lost revenue at the flagship channel. Just as critically, Mr Allen is considered an obstacle against a bid on the company, having blocked a 130p per share proposal from Apax, Goldman Sachs and Blackstone earlier this year.
ITV shares rose 2.75p to 99p.
However, there are doubts about how much a new CEO could do for ITV. The company has already changed senior management for broadcasting and ad sales, and is locked into a £500 million share buyback programme that will restrict capital available to spend on programming or new strategies, such as subscription channels.
Read The Times on ITV here.
On broker watch:
Deutsche Bank started coverage of JKX Oil & Gas, Tullow Oil, Burren Energy and Premier Oil, all with "buy" ratings. It also rated both Cairn and Venture Production "hold" in new coverage.
JP Morgan moved Cadbury Schweppes to "underweight" from "neutral".
Altium shifted Inspace to "hold" from "add".
UBS moved FKI and Bodycote to "reduce" from "neutral" and cut Charter to "neutral" from "buy". It also raised both Weir and Rotork to "buy" from "neutral".
Citigroup started Clipper Windpower with a "buy" stance.
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