Market Report: Drug shares suffer again from American headache

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AMERICAN influences took their toll yesterday. A profit warning by the US Merck drugs group produced yet more agony for drug shares and stories that the trans-Atlantic love affair with British Petroleum was beginning to cool unsettled the oil giant.

Merck warned of lower earnings and 1,000 job losses. It is the third US drugs group to caution on profits this month. American pharmaceutical shares have been in decline for 15 months and are expected to fall further.

The US drag is having a telling impact on UK drug shares. Glaxo Holdings fell 17p to 597p, against a 943p peak touched last year. SmithKline Beecham lost another 12.5p to 416p (566p) and Wellcome 20p to 890p (1,174p). Imperial Chemical Industries was pulled into the fray on Zeneca drug considerations. It fell 16p to 1,205p.

The Hillary Clinton 'task force' is expected to make known its plans for the US healthcare industry next month. It is widely assumed that drug margins will come under intense scrutiny and profits will be hit.

Wellcome could, however, reduce the strain today. It is due to report interim figures and should manage pounds 320m against pounds 244.7m. A confident statement could help to lift the cloud over drugs.

BP shares were at one time down 6p at 294p, as the stock market detected signs of US selling pressure. They closed down 1p at 299p.

US investors, at the last count, had 24 per cent and their determined buying has been a significant factor in pushing the price above 300p. Many analysts expected BP to fall to about 160p, following last year's traumatic experiences, which included a first-ever loss and the sudden departure of Robert Horton, the chairman.

But, much to the surprise of UK institutions, their US counterparts took a shine to the oil group. The shares did sink as low as 182p, but the Americans then began to soak up the stock on offer from London fund managers.

They were largely responsible for driving the price to around 270p, when UK instititutions became buyers again.

US investors are clearly sitting on handsome BP profits, which they could find too tempting to resist. They have also built a big Glaxo shareholding, again about 24 per cent, which is likely to be under pressure.

The rest of the stock market staged a strong recovery, helped by a firm New York opening. An early 17.4 points fall in the FT-SE 100 index was cut to 0.5 at the close.

Trading was often busy with turnover inflated to 833.5 million shares by the George Wimpey sale and end-year tax selling.

Wimpey ended 4p down at 142p. Grove Charity Management, through Cazenove and SG Warburg, sold 84.3 million shares, retaining a 5 per cent stake.

Bass, the brewing group, attracted another downgrade with Henderson Crosthwaite moving from pounds 580m to pounds 535m and from pounds 613m to pounds 582m. Cadbury Schweppes enjoyed the combined benefits of a US investment road show and continuing Barclays de Zoete Wedd support. The shares, at one time up 12p, closed 8p higher at 490p.

Supermarket shares remained weak although Argyll Group, the Safeway chain, firmed to 344p as James Capel increased its profit forecast by pounds 5m to pounds 462m.

Wm Morrison edged ahead 1p to 166p. Profits are due today with the market anticipating an advance from pounds 61.6m to pounds 84m.

Next, the revitalised retailer that fell to 6.5p in 1990, eased 1.5p to 163p as Carr Kitcat & Aitken advised investors that it was 'nearly time to get off' and suggested switching into Marks & Spencer.

VSEL, the engineer and shipbuilder due to close the Cammell Laird shipyard on Birkenhead in July, was the session's main beneficiary of analytical attention. After visiting its operations, analysts upgraded, lifting the shares 60p to 645p. Hoare Govett expects profits this year of pounds 58m, reaching pounds 63m in the following year when the group's cash pile could nudge pounds 240m.

Carlton Communications, up 27p at 748p, was another helped by analysts' attention. The group apparently spoke to at least half a dozen, prompting most to make positive noises.

Lasmo, the oil group, tumbled 19p to 173p on the loss and cut dividend. APV, the engineer reporting today, is expected to confirm a pounds 35m restructuring. Profits could be about pounds 25m. The shares fell 1p to 112p.

Blenheim, the exhibitions group, edged ahead 3p to 602p as US investors picked up shares following figures. But the high-flying publisher Dorling Kindersley slumped 41p to 264p, reflecting disappointment with interim profits in line with expectations. Sterling Publishing held at 118p. Michael Preston, deputy chairman, sold 1.37 per cent at 117p.

Coats Viyella, the textile group, retreated 6p to 233p. There was talk of a line of shares, thought to be 5 million, overhanging the market.

Another textile group, John Foster, shrank 4p to 18p as it warned that it expected to be in the red this year as well as last year.

Hartstone, the fancy goods and hosiery group, remained under pressure. The shares were at one time down to 123p. They ended 6p down at 127p, their lowest close since 1989.

On the property pitch, Raglan Property Trust continued to defy gravity. The shares fell 0.25p to 0.5p, still well above the value the Hong Kong-led rescue bid places on them.

Bredero Properties dropped 5p to 14p. The company is renegotiating its loans.

AFTER falling 17.4 points the FT-SE 100 index ended just 0.5 lower at 2,860.6. The FT-SE 250 index fell 7.2 to 3,138. Trading was brisk with turnover reaching 833.5 million shares from 36,786 bargains. The account ends tomorrow with settlement on 5 April. Gilts were firm.

THE Trafalgar House rights issue attracted an 89 per cent take up. Swiss Bank Corporation, which has pledged to supply 67 million shares to Hongkong Land, paid 75.5p for the 38.78 million unwanted rights shares. SBC is thought to have picked up nil paid rights in the market and has enough stock to complete its obligation to provide shares to take HKL to near 30 per cent of Trafalgar, up 1.5p to 77p.

PITTENCRIEFF, bidding for Aberdeen Petroleum, jumped 19p to 386p, a 29p gain this week. The group has said it plans to float its US mobile communications arm, raising dollars 50m. But there are rumours that it intends to accept an offer it has received for the business instead. Pittencrieff wants to concentrate on its oil operations. The strength of its shares pushed Aberdeen 1p higher at 17.5p.