Market Report: Bad medicine for Glaxo on day of mini-revival

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GLAXO, the drugs giant, missed a modest share revival as the stock market fretted about the losses it may have suffered on its huge cash hoard.

Goldman Sachs, the US investment house, did the damage. Apparently it suggested the loss could top pounds 100m and pulled back its forecast for the year ending this month by pounds 50m to pounds 1.9bn.

The US group would not comment. But it also seemed to have cut its longer-term estimates with 1997 lowered from pounds 2.35bn to pounds 2.1bn and growth completely eliminated in 1998 with a pounds 2.47bn forecast also reduced to pounds 2.1bn.

Increased competition for such drugs as Zantac and Zofran is thought to behind the longer- term reductions. Glaxo shares fell 14.5p to 538p in busy trading with the Goldman clout encouraging New York selling.

Speculation about Glaxo's loss on its cash pile has been growing. Nomura's Mark Clark recently cut his forecast from pounds 1.925bn to pounds 1.865bn to accommodate what he suspected was a pounds 60m loss.

With more than pounds 2bn in cash, Glaxo is clearly a potential casualty of the sharp fall in world bond prices. Market sources suggest that about pounds 1.2bn of its cash reserves are invested in bonds and gilts. Although it will not realise the loss it will take it into its next profits.

Glaxo, which adopted its usual policy of not commenting on market rumours, could be undergoing dramatic changes following the pending departure of Sir Paul Girolami, its dynamic chairman, who retires from executive duties at the end of the month.

He has always opposed big acquisitions and been content for the drugs group to spend heavily on reseach and amass its cash mountain. Many suspect that Sir Paul's resignation will be followed by a big acquisition, possibly McKesson, the US drugs distributor, or PCS, which manages the pharmaceutical needs of big US users.

The suspected Glaxo discomfort spread to other drug shares, with SmithKline Beecham down 5p to 403p.

The rest of the market underlined its long-standing perversity by defying most predictions and ending its four-day decline, which chopped more than 100 points from the FT-SE 100 index.

But the recovery looked fragile and technical - very much a dead cat bounce. The index ended 20.2 points higher at 2,960.4 with the FT-SE 250 index still in negative territory, if only just.

Turnover remained modest but there was a sprinkling of early buyers whose interest apparently surprised the traders who overcame the rail strike.

Shares started with a knee-jerk fall but quickly adopted a firmer stance. Bond markets were much calmer and government stocks ended up to pounds 13 4 higher. New York recovered its poise as the dollar managed to improve on its precarious display which created such turmoil on Tuesday.

RTZ, the mining group, was one to join the advance, gaining 9p to 841p. Hoare Govett was responsible, lifting its profit projections fom pounds 400m to pounds 450m and pounds 510m to pounds 575m.

Imperial Chemical Industries jumped 17.5p to 756p following an investment presentation on its Tioxide division. The enthusiasm spilled over to Hanson, third in the Tioxide league, lifting the shares 3.75p to 242p.

Lloyds Bank, as the wrangle over Cheltenham & Gloucester Building Society continued, settled down after early unease, ending little changed at 548p. Smith New Court moved from hold to sell, reducing its estimates from pounds 1.227bn to pounds 1.101bn and from pounds 1.43bn to pounds 1.267bn.

Grand Metropolitan, displaying its US food operations to analysts next week, shaded 4p to 405p and Burn Stewart, the Scotch whisky group, held at 120p ahead of meeting analysts.

Bowater, the paper and packaging group, rose 19p to 454p. Analysts are due to visit its US operations. Shell, up 12.5p to 695p, reflected the feedback from a US trip.

Tate & Lyle was little changed at 394p following a City presentation and De La Rue rose a further 12p to 894p on the Henderson Crosthwaite recommendation.

First Leisure Corporation's figures were overshadowed by a one million share overhang, leaving the price 19p down at 289p.

BAT Industries ended little changed at 390.5p as its US tobacco row simmered and Eurotunnel rose 3p to 279p ahead of details of its rights take-up. GKN, down 7p to 574p, was said to have been hit by a split selling order.

Pittencrieff returned from suspension at 101p.

The FT-SE 100 index rose 20.2 points to 2,960.4 but the FT-SE 250 index shaded 0.7 to 3,461.2. Turnover was a modest 463.3 million shares with only 20,249 bargains. The account ends on 1 July with settlement on 11 July.

Fortune Oil, born out of the old Blackland Oil & Gas, held at 5.25p. The tone at yesterday's shareholders' meeting was positive and the group's links with China, where it sells crude oil and petroleum products, should benefit from the slightly more relaxed atmosphere developing between Hong Kong and China and the recent strength of the crude price.

The intriguing possibilities open to Great Universal Stores fascinate Nikko, the securities house. Analyst Rowan Morgan says the group has a break-up value of 700p a share with 160p a share in cash. He talks about share buy-backs, special dividends and takeover bids. Profits for the year to March will be pounds 505m and pounds 620m is forecast for 1996. The shares rose 5.5p to 564p.

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