Market Report: Pace of European recovery rattles LogicaCMG

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Is a profit warning brewing at LogicaCMG? Or will the computer services group's explanatory chats with City analysts bring forecasts down enough to avoid one?

Is a profit warning brewing at LogicaCMG? Or will the computer services group's explanatory chats with City analysts bring forecasts down enough to avoid one?

It is almost two months since we last heard Martin Read, Logica's long-standing chief executive, outline his cautiously optimistic view of trading across the group. But industry watchers increasingly worry that the upturn in IT spending in Continental Europe is not coming through at the pace expected.

There is more evidence of the slow pace of growth buried in Logica's latest annual report, where the number of people it employs - some 19,750 - is substantially below the level that had been expected. That is good for costs, of course, and profitability is forecast to rise this year. But a new report from UBS yesterday was the latest to shave sales forecasts. It said turnover across Logica's non-UK businesses will actually be lower in the first half of 2004 than it was in the same period last year, and there will be barely 2 per cent growth in the second half.

Last week, a French broker which had been in to see the company also cut its forecasts and warned that progress at Logica's Benelux operations this year is worryingly dependent on it winning a big banking or insurance contract. LogicaCMG shares were down 1.25p to 243.25p yesterday.

The FTSE 100 ended a languorous day at 4,571.8, just 1.8 points above where it started. The volume of trading was subdued as investors awaited more economic data that would help them decide on the strength of the recovery and the likely path of interest rates. Or at least that was what they said was their reason for not heading back after a boozy lunch in the sunshine. All the main UK indices ended in positive territory, but only just.

Many pub stocks were in demand on the assumption that the weekend sunshine had tempted people out for a drink. Enterprise Inns was up 5p to 625p after Deutsche Bank wrote a glowing piece about the impact on the company's cashflow of the acquisition of the Unique Pub Company. And Punch Taverns, whose £1.2bn acquisition of Pubmaster last year took its estate of hostelries to 7,400, was 15p firmer at 744p before interim results on Thursday. Gossips reckon the group could use the opportunity to raise its target of £10m in cost-savings from the Pubmaster deal.

Amvescap, the US-focused fund manager, tumbled 4.5p to 403.5p on talk that it is struggling to reach a settlement with the New York attorney-general, Eliot Spitzer, who has been investigating the company over alleged market-timing abuses. Amvescap has a trading update today that could show if the bad publicity is affecting sales of investment products.

Weak trading in the two big drug makers weighed on the FTSE 100 index. Both were off before their first-quarter results later in the week. GlaxoSmithKline - which has already issued a profit warning for 2004 - fell 20p to 1,152p, the worst performance of a blue chip. AstraZeneca fell 19p to 2,636p. Over the weekend, the Swiss pharmaceutical giant Roche published very strong results from trials of its lung cancer drug Tarceva, which will be a competitor to AstraZeneca's new pill Iressa. Roche's partnership with Antisoma, the little UK biotech company, has not proved so fruitful yet, though, since trials of the most advanced drug have failed. Antisoma's shares collapsed by 24.5p to 20p.

And SSL International, the Durex condoms company, was up 0.25p to 317.75p on hopes it will successfully sell its surgical gloves and antiseptics business - at long last. SSL was rumoured to be talking to Apax Partners, a private equity group. Another venture capital outfit, 3i Group (whose shares were 3p lower at 635p yesterday), walked away from the talks last month.

CSFB's positive comments on the "sub-prime" lenders (that is, those companies lending to people with poor credit histories) buoyed a sector which is often criticised for being at risk from interest rate rises. Provident Financial was 10p better at 744p, although Cattles - which CSFB says is the higher risk, higher reward play of the two - gave up early gains to close down 1p at 359p.

Hopes for a positive regulatory review of water prices sent Severn Trent up 2p to 788.5p.

Austin Reed, the men's clothier, was 6p better at 147.5p as Shami Ahmed, the jeans entrepreneur, sold his 9 per cent stake to Dawnay Day, the investment firm which now has 18 per cent. The move stoked speculation Dawnay Day could bid, or tempt others to do so.

The biggest move of the day, though, was for a new issue. The AIM flotation of York Pharma marks a return to the market for Terry Sadler, chief executive of the skincare group Bioglan which went bust in 2002. York is developing a new women's healthcare cream for fungal infections and is hoping to use its shares as currency for more acquisitions. Floated at 25p, it closed at 42p.

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