Market Report: Smiths hits year high on signs of strong trading

If you think 2004 was a good year for Smiths Group you ain't seen nothing yet. That was the message from Numis Securities yesterday and investors lapped it up, sending shares in the conglomerate 15p better to a new high for the year of 802p.

If you think 2004 was a good year for Smiths Group you ain't seen nothing yet. That was the message from Numis Securities yesterday and investors lapped it up, sending shares in the conglomerate 15p better to a new high for the year of 802p.

According to the broker, business is booming across all of Smiths' various businesses. Its telecoms unit is said to be benefiting from the roll-out of third-generation (3G) infrastructure in the United States while the group's defence division is enjoying strong demand as a result of America's drive to protect itself from terrorist attacks. Elsewhere, Smiths' medical devices unit is enjoying growth of up to 8 per cent in Numis' estimation.

All this has prompted the broker to upgrade its earnings forecasts. It now believes that the conglomerate can achieve earnings growth of 16 per cent next year, which should help Smiths shares to continue their march higher. Over the past 12 months they managed a 23 per cent rise.

The FTSE 100 finished the week on a negative note, falling 38 points to 4,696, as turmoil hit the pharmaceuticals sector. In London, AstraZeneca slumped 170p to 1,886p as the group's lung cancer drug Iressa disappointed while in New York Pfizer shares plunged on worries about the safety of its Celebrex drug.

GUS lost 15.5p to 914.5p as Dresdner Kleinwort Wasserstein poured cold what on rumours that the retail conglomerate is about to be acquired by a private equity consortium. "We believe the speculation that GUS will receive a venture capital bid at 1,100p is wide of the mark," the broker said. According to DKW, a VC bidder would want the agreement of the group's board and the German broker is certain that this would not be forthcoming given the ongoing strategic review at GUS.

Corus dropped 0.75p to 51p as a "sell" note from ING Financial Markets unnerved investors. Sentiment towards the stock was hit hard earlier this week when the Russian businessman Alisher Usmanov pretty much sold the whole of his stake in the Anglo-Dutch steel group. He was among the few to buy into Corus when it looked to be in serious financial trouble back in 2003 and his decision to bail out certainly looks a wise one. ING takes the view that the steel group's shares are overvalued and believes they should trade closer to 45p each.

The utility Northumbrian Water jumped 6.5p to an all-time high of 174.75p. The rise set off a new bout of takeover speculation. Back in September shares in the water group were set alight by rumours that its rival Kelda was looking to buy the company.

However, earlier this month, Kelda's chief executive, Kevin Whiteman, denied the story saying it was without foundation. Yesterday's move by Northumbrian certainly stood out against the background of a lacklustre performance by the wider sector. AWG fell 0.5p to 817.5p, Kelda lost 3p to 591p, and Severn Trent lost 11.5p to 932.5p but Pennon improved 2p to 972p.

Photo-Me rose 3.5p to 98p after it emerged that Capital Group, the US fund management giant, had increased its stake to 14.9 million shares, or 4.1 per cent of the stock. First Choice dropped 1.25p to 153p as the Spanish hotelier Barcelo sold down its holding in the tour operator. It disposed of 26 million shares but retains 85.5 million, or 16.2 per cent of the company.

Lower down the pecking order, Diploma added 14p to 634p on talk of strong trading at the distributor. Pentagon Protection ticked 0.2p better to 7.95p as the specialist windows maker posted an annual profit of £170,000, which compares with a loss of £270,000 last year, and boasted of a record order book.

Hot Group, the online recruitment specialist, was unchanged at 16.25p despite a quite savage downgrade by its house broker Numis Securities. Although the trading environment for recruitment companies seems to be improving, Numis said that Hot is suffering from an oversupply of teachers, which has made recruitment by schools easier than normal, and a shift towards using less qualified classroom assistants. As a result, Numis fears that demand for the company's services will wane and so cut its earnings forecasts for Hot by 20 per cent for the current year and 33 per cent for 2005.

AG Barr improved 2.5p to 789p on whispers of booming trading at the soft drinks group. Gossips reckon sales at the company are well ahead of those achieved last year and suggested that brokers will soon have to upgrade their earnings forecasts. Likewise, Richmond Foods jumped 20p to 640p as world spread through dealing rooms of record trading at the ice-cream maker over the past two months.