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Shire makes a comeback as markets hit 5,700 (again)

MARKET BLOG: Shire shares soar 5% after the drugs firm reassures investors. The FTSE 100 rallies 1.3% on a euro promise.

 
Shire makes a comeback as markets hit 5,700 (again)

  • World markets rise despite weak manufacturing data from China, UK, US
  • Investors await this evening's Fed comment and tomorrow's ECB interest rate statement
  • Cape shares crash on profits warning
  • Spain keeps BBB+ rating from Standard & Poor's
  • UK purchasing managers' index hits 38-month low
  • Rexam falls as half-year results disappoint
  • Next leads FTSE 100 after beating sales forecasts

16:05: Shire (SHP.L), the Hampshire-based pharmaceuticals giant, shot up 5.3% or 99p to £19.48 after reassuring investors that earnings would still grow by a double digit percentage rate this year.

Shire, a former member of Citywire Top Stocks, has been under a cloud since the end of June when US authorities approved a generic rival to Adderall XR, one of its best-selling drugs and and an important treatment for hyperactive kids.

At its half-year results chief executive Angus Russell said in response to analysts’ downgrades the company wanted to underline the group’s potential for continued growth. ‘We feel confident about putting a floor under our earnings (growth) this year of 10%,’ he said.

This afternoon’s rally takes the share price close back to the £19.66 level before it plunged at the end of June on the Adderall fears.

Analysts at Jefferies noted that some of the earnings growth would come from lower spending and taxes but said ‘signs of cost control and strong 2Q sales should enable a stock uptick’.

The recovery in the share price is good news for investors including the SVM UK Growth fund, run by Colin McLean and Citywire A-rated Margaret Lawson, which holds Shire as a top 10 position.

For more on the company here is a video I made at the end of June called:

'Stressed Shires could make a comeback'.

 

'Whatever it takes'? Investors buy into euro promise

15.30: ‘It’s all about the ECB,’ says Joshua Raymond of City Index, explaining today’s market rally, which runs against a mostly weak set of signs on the strength of the world economy.

Expectations that the European Central Bank’s Mario Draghi will follow up his pledge last week to do ‘whatever it takes’ to save the euro are keeping markets higher. In addition, investors are awaiting the policy decision from the US Federal Reserve comes later today, along with some carefully watched comments from chairman Ben Bernanke.

No immediate action is expected in the US though, nor in the UK, where the Bank of England is poised to make its own monthly policy announcement.

‘The data has been pretty weak – it’s going to increase expectations of central bank action. It’s all about central banks. Given the rhetoric from Mario Draghi, there is optimism that he is going to announce some form of stimulus,’ said Raymond.

After weak PMI readings for China and the UK this morning, the US ISM manufacturing PMI came in at 49.8 (below 50 indicated contraction), worse than the 50.2 expected. July employment data was better than expected though, at 163,000 for July.

The Dow Jones is up 0.1%, while the S&P 500 is 0.2% higher. In the UK, the FTSE 100 has been steadily rising throughout the day and is now up 1.1% at 5,697, with 5,700 proving a tough barrier to overcome.

Cape shares plunge on second warning, Slater fund hit

15.00 Cape (CIU.L) shares have plunged by more than a third today after the industrial services provider issued its second profits warning in two months.

Cape, a top-10 holding in the top-performing MFM Slater Growth fund, crashed 35% or £1.03, to 186.6p after warning that delays in projects in Australia meant it  was unlikely to meet profit expectations for the full year.

‘Lower revenue, combined with increasing pricing pressure, has led to operating margins being significantly lower than previously expected,’ said the company, which provides insulation and industrial cleaning services to power firms and miners.

Craig Howie of Shore Capital said the news was ‘enormously disappointing’, adding: ‘We had previously downgraded our recommendation to "hold" following contract issues at Arzew in Algeria, and are now placing our stance under review following today’s update.’

The MFM Slater Growth fund, managed by Citywire A-rated Mark Slater, is top of the UK All Companies fund sector over three years. However, it has tumbled to the sector’s bottom quartile after losing over 7% in the three months to the end of June, in part caused by the problems at Cape. Cape’s shares have more than halved in the past three months.

Spain retains S&P rating despite 'negative' outlook

12.06: Spain hangs on to its BBB+ rating from Standard & Poor's, though the ratings agency has re-iterated its 'negative' outlook for the country amid 'multiple risks' to Spain's crucial economic rebalancing towards greater reliance on exports.

Actually, S&P says Spain is re-orientating its economy – which is suffering the fall-out from a massive property bubble, which burst robbing the country of its main source of revenues – faster than expected. But this has meant a decline in tax receipts, putting a greater strain on government finances. The government's commitment to cut its debt is 'strong', S&P says.

But amid expectations that Spain could seek a sovereign bailout, S&P warns over growing unemployment and an even worse economic performance than expected, as well as uncertainty about the ultimate costs of bailing out the banking sector.

Spain's Ibex index is down 1.8% today, while 10-year bond yields are lower at 6.6%, as investors wait to see what the European Central Bank will do to fix the eurozone when it announces its latest policy decision tomorrow.

UK manufacturing falls to new low

10.30: UK manufacturers' woes continue with the latest manufacturing purchasing managers' index (PMI) hitting a 38-month low in July.

The reading, provided by data company Markit with the Chartered Institute of Purchasing and Supply, is much worse than expected and will only add to concerns about the UK economy after news that it shrunk by 0.7% in the second quarter of the year. It does, however, contradict another industry gauge, the CBI industrial trends survey.

Is this enough to prompt the Bank of England to do more to boost the economy tomorrow?

Economists are divided over the outcome of the monthly policy meeting on Threadneedle Street, with some expecting the bank's monetary policy committee to wait and see how much impact the extra quantitative easing (QE) announced last month will have. A minority of City economists though reckon things are so bad that the Bank will act.

As Alan Clarke of Scotiabank says 'the Bank of England is a master of surprise'.

Rexam falls as half-year results disappoint

10.00: Rexam (REX.L) has bounced back a bit but is still the FTSE’s biggest faller, down over 3% to 421p after its half-year profits came shy of some analysts forecasts.

Rexam has bounced back a bit but is still the FTSE’s biggest faller, down over 3% to 421p after its half-year profits came shy of some analysts forecasts.

The company, which makes cans for Red Bull, Pepsi and Carlsberg, said pre-tax profits from continuing operations rose to £207 million in the first six months of the year, up from £204 million a year ago, on sales 3% higher at £2.17 billion.

Although drinks can sales rose 6%, sales at its healthcare business fell slightly as a result of there being fewer flu sufferers in the US and from one of its drug delivery devices going off patent.

The company delighted investors last month by announcing the sale of its underperforming personal care business for around £452 million, £370 million of which it will return to shareholders.

Sandy Morris of Jefferies said second half trading could be ‘challenging’ but maintained the broker’s ‘buy’ rating on valuation grounds. Deducting the proposed 42p per share return of capital from the share price leaves the stock trading on around 10.3 times forecast earnings for 2013 and on a dividend yield of around 4.3%.

The FTSE 100 is now 28 points higher at 5,664.

Next leads FTSE higher after beating targets

09.10: More on the Next (NXT.L) results. The country's second biggest clothing retailer tops the FTSE 100 with a 5%, or £1.63, surge to £33.85 after beating its target for first half sales and raising its forecasts for this year.

Once again the driver to the 4.5% rise in total sales is the Directory home shopping business whose services were much in demand during the wet weather. Like for like sales rose a more modest 0.2% in the six months to 28 July but this compares with the firm's earlier guidance that sales would be flat or could fall as much as 3%.

Next, the official clothing and homeware supplier to the London 2012 Olympic Games, now expects total sales to grow between 2%-4.5% in 2012-13 with group profit before tax of £575 million to £620 million, up from its previous guidance of £560 million to £610 million.

Kate Calvert, retail analyst at Seymour Pierce, said: 'While not quite a gold medal winning perforamnce ... Next has delivered a commendable one nonetheless, slightly above the top end of its guidance, and coninues to win market share.'

The FTSE 100 is now 30 points higher at 5,667 as investors ignore the latest signs of how the eurozone debt crisis has hit China's growth. The Euronext adds 4 points or 0.6% to 636.

See our FTSE home page for details on the day's other risers and fallers.

FTSE ignores China data to rise on central bank hopes

08.05: The FTSE 100 makes a surprisingly strong start as investors continue to look for help from central bankers after fresh signs of weakness in China's economy.

China's official purchasing managers' index (PMI) fell to 50.1 in July from 50.2. This is an eight-month low, although any reading over 50 shows an expansion rather than contraction.

The HSBC China PMI, also out today, was more positive rising to a seasonally adjusted 49.3, its highest level since February, although it was the ninth consecutive month it has been below 50, indicating contraction in the economy. 

The FTSE 100 rose 25 points, or 0.4%, to 5,660 with retail darling Next (NXT.L) leading the charge, 4% higher at £33.53, after raising its full-year forecast after a good first half of the year.

Can maker Rexam (REX.L) was the biggest faller, down 3% to 421p after its half-year figures.

On currency markets the pound was slightly weaker at $1.5672 against the dollar but rose to €1.2320 against the euro.

The main focus for investors is waiting to see what, if any, measures the central banks take to ease the pressure in financial markets over the eurozone debt crisis. The US Federal Reserve will announce it statement this evening and tomorrow brings the interest rate statement from the European Central Bank.

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