Market Report: Shire gets a boost from legal hopes

  • @greentoby

The wider market may have been feeling rather poorly yesterday, but Shire was one stock looking somewhat healthier. The drugs manufacturer found itself among the top blue-chip risers amid optimistic comments over its upcoming legal battles.

Next month sees the start of a court hearing in the States regarding one of the pharmaceutical group's ADHD products Intuniv. Its Swiss rival Actavis is among a number of companies hoping to produce a generic version of the drug, but City scribblers were talking up the likelihood of a positive outcome for Shire.

Saying from his analysis he believes the group "is in the strongest position in the case", Berenberg's Adrian Howd reiterated his belief that "the most likely outcome" is the company settling with Actavis.

The scribe added such a move would "rapidly eliminate uncertainty from the … investment case" as he raised his price target on the stock to 2,150p while keeping his "buy" recommendation.

Also giving Shire a push were the analysts from Barclays who decided to upgrade their advice to investors to "overweight". They said their "central assumption" is that the company will settle with Actavis and claimed if this was "on more favourable terms [it] could add 6 per cent to our valuation".

At the same time, they argued that although investors' sentiment towards Shire had turned "from optimistic to pessimistic", there were a number of reasons to be positive over its prospects with "plenty of upside potential in the pipeline".

As a result they claimed it was "appealing" compared to peers including GlaxoSmithKline, down 0.5p to 1,484p, and AstraZeneca, up 6.5p to 3,019p, and Shire went on to close 19p better off at 2,018p.

Overall, the FTSE 100 was pegged back from its highest level since April, sliding 31.74 points to 5,833.04.

Stocks trading ex-dividend – such as heavyweight diggers Rio Tinto and Vedanta Resources, which retreated 152p to 3,038p and 40.5p to 919.5p – were partly to blame, while it was not a good day for the mining sector in general.

Eurasian Natural Resources' decision to cut its interim dividend as well as its spending plans resulted in the Kazakh group, which also revealed its first-half profits had slumped more than 40 per cent, sinking 35.1p to 379.6p.

The tobacco industry's failure to overturn Australian legislation requiring cigarettes to be sold in plain packaging was hitting British American Tobacco (another losing its payout attraction) as well as Imperial Tobacco.

The two slipped back 65.5p to 3,380p and 44p to 2,489p respectively after Australia's High Court rejected an appeal claiming that the law was unconstitutional, although Oriel Securities' Chris Wickham said it "seems unlikely plain packs would lead to lower volumes".

On the FTSE 250, First Group crashed down 15.8p to 243.2p despite the train operator learning that it had won the West Coast franchise.

Its share price had already climbed more than a third over the past month, while Panmure Gordon's Gert Zonneveld warned he believed there were "substantial risks in respect of revenues falling short of expectations".

At the same time, Stagecoach, whose Virgin Trains joint venture with Sir Richard Branson's Virgin Group failed with its bid to keep operating the line, ticked up 5.4p to 291.9p.

A late rally helped Informa to finish the day 10.6p ahead at 406p, even though it was among the ex-dividend stocks. The move was accompanied by vague bid speculation which was being revived around the publisher – which was the subject of failed approaches back in 2006 and 2008 – although traders were playing the idea down.

Shares in JJB Sports were very much in the bargain bin. The Aim-listed retailer slumped 1.02p to 3.3p in the wake of US chain Dick's Sporting Goods deciding to write off the £20m investment it made in the tiddler less than five months ago.

Elsewhere, Roxi Petroleum spurted up 0.25p to 3.25p as punters applauded an update from the oil and gas explorer's Galaz site in Kazakhstan.