The pharmaceutical giant AstraZeneca will deliver first-half earnings on Thursday, and while most brokers expect the company to report strong results and an upbeat forecast for the rest of the year, Collins Stewart thinks the shares are overvalued by more than 20 per cent.
Positive newsflow on Crestor, the group's anti-cholesterol drug, and the occasional bout of takeover speculation have driven the shares sharply higher in the past 12 months, outperforming the wider market and giving investors a very decent 41 per cent return. But Collins Stewart believes the group's pipeline of new drugs has "continued to implode" and is "clearly failing to deliver". The broker also believes that its asthma treatment Symbicort is substantially inferior to GlaxoSmithKline's Advair.
Traders said that reiterating its "sell" stance before what are expected to be very good results and strong trading momentum is a brave move by Collins Stewart. The 2,593p target represents a 21 per cent downside from the 3,314p the shares closed at yesterday, a four-year high, and a gain of 121p. Meanwhile, GlaxoSmithKline added 21p to close at 1,512p.
According to Dresdner Kleinwort, shares in Royal Bank of Scotland are "absurdly cheap", and the German investment bank spent most of the session pushing the shares. Traders said the broker has a 2,250p price target on the banking giant, giving a 35 per cent upside from the current price, as the shares added 29p to 1,702p. The financial sector was in demand across the board, with Barclays firming 16p to 613.5p before next week's results and HSBC adding 20p to 967p.
A rush of private equity deals outside the UK including a $31.6bn (£18bn) offer for the hospital group HCA, which looks like being the largest buyout ever, underpinned an excellent start to the week for London equities. Only four FTSE 100 stocks closed lower as the index ended 114.2 better at 5,833.9. Elsewhere among blue chips, rallying global equity markets encouraged buyers of asset management stocks. Man Group led the way with a 93p gain to 2,428p; Schroders climbed 37p to 944p; Amvescap, which paid $375m for the US investment group W L Ross yesterday, added 22.25p to 481.25p. Numis Securities reiterated its "buy" recommendation on Amvescap.
Reports that the private-equity property investor Starwood Capital is poised to make a hostile bid for Whitbread excited investors, although not everyone was convinced. Whitbread rallied 72p to 1,244p, with talk that a bid could value the shares at up to 1,360p, but some traders said private equity groups very rarely mount hostile bids.
Talk of a bid for Whitbread also helped the pubs and bars group Mitchells & Butlers, 18.75p better at 534.75p in early deals before the shares dropped back to close at 520p, 4p better, after a bout of profit-taking. The Swiss broker UBS upped its price target for the shares to 540p.
In the small caps, a very positive announcement from Altona Resources appeared to go almost unnoticed by investors. The group has signed a non-binding memorandum of understanding with the oil giant BP Australia to develop and evaluate the Arkaringa coal prospect in South Australia. Altona shares moved only 1.25p higher to 10.87p, leaving market makers surprised a deal with such a high-profile partner did not encourage more buyers.
In a disastrous day of dealing for Billing Services, the telecommunications industry clearing, risk and settlement specialist, the shares halved to close at 22p. The company was brought to the market in June 2005 by Evolution Securities. Billing confirmed that management buyout talks have ended, leading to the resignation of the executive chairman Patrick Haynes.
The South African uranium producer Brinkley Mining has also had a rough ride since coming to the market in May. Last week, there was talk that Beaumont Cornish had been replaced as nominated adviser, but in fact Arbuthnot Securities has been appointed as house broker with Beaumont retaining its position. The shares shed 1.5p to 24p on a bout of profit-taking.
Taghmen Energy changed its name to Petrolatina last week, but market makers and traders were baffled by a 23 per cent rise in the share price to 37.5p. There were vague rumours that the company, one of only a handful of South American oil stocks that is actually producing, was tipped on a German television show but traders expect the stock to suffer from some profit-taking sooner rather than later.Reuse content