Market Report: Suffering Zeneca dips below rights price

SHARES of the Zeneca drugs group fell below their 600p rights level, only a month after shareholders stumped up a record pounds 1.3bn.

In busy trading the price slipped 9p to 595p. It hit 682p when unofficial dealings started in the spring.

After early exuberance, Zeneca has looked in need of a pick-me-up since the demerger from Imperial Chemical Industries. In the nail-biting run-up to the rights close, the weakness of the shares on several occasions looked in danger of turning the cash call into an embarrassing flop.

In the event they held up and the rights achieved a remarkable 86.15 per cent take-up.

Some are surprised the shares have managed to hold above 600p for even a month. Drug shares have been notoriously weak and it could be argued that Zeneca is merely catching up with the rest of the industry.

The Zeneca performance is a complete reversal of what was expected when the decision was made to separate the drugs division, operating in a higly rated, even glamorous industry, from the dull chemical side.

Almost as soon as the Zeneca float got under way the drugs sector started to come under pressure. Controversy has surrounded some treatments and competition has increased, with margins coming under heavy government pressures. To pile on the agony, Hillary Clinton's review of the US medical industry has turned out to be exceedingly protracted and looks like dragging on at least until September.

This year drug shares have had a miserable time, with Glaxo Holdings and Wellcome ranking as the worst-performing blue chips.

Old ICI has, in the meantime, displayed the occasional sparkle. It was little changed at 640p against a 1991 high of 710p.

Zeneca's interim figures are due next week. Hoare Govett expects pounds 345m.

Glaxo, down 10p at 521p, and Wellcome, 9p at 612p, continued their seemingly remorseless retreat. Fisons lost 3p to 161p, although SmithKline Beecham, on its figures, edged ahead 2p to 421p. Medeva had another torrid session as an attempt to reassure backfired. At one time the price was down to 99p. It closed at 102p, off 8.5p.

The rest of the stock market was in ragged retreat for much of the session, with some late bargain-hunting reducing the fall. At one time the FT-SE 100 index was down 22.1 points, just hanging above the crucial 2,800. It closed 9.8 off at 2,814.1.

In what is a perverse market, better-than-expected high street sales nudged a few stores higher but, with a reduced trade gap, only managed to reinforce the view that the recovery is strengthening, thereby reducing the prospect of further interest- rate cuts.

There is increasing concern about company results. Two profit warnings and a cautious shareholders' meeting underlined the anxiety. Sage, once a high-flying software group, crashed 119p to 385p, following a warning that profits will be below expectations. Renishaw, maker of measuring instruments, said this year's profits would be lower; its shares tumbled 34p to 240p.

A cautious statement by Dunhill, the luxury goods group controlled by Rothmans International, reduced the shares 27p to 340p. Supermarkets again fretted about squeezed margins, likely to be exacerbated by a rumoured new outbreak of price cutting. Iceland was briskly traded, down 4p to 210p.

Cash call fears swirled again. National Westminster fell 9p to 482p and Pearson, the banking and publishing group, 5p to 434p.

Lloyds Bank, due to launch the bank profit season at the end of this month, lost 13p to 566p, and Barclays 5p to 473p.

Tiphook's misery continued with a 16p decline to 197p. US shareholders have moved their stake up to 38.12 per cent, presumably during the slide surrounding the results.

Reuters, the information group, was one to shrug off the gloom. US buying ahead of interim figures next week produced a 16p gain to 1,408p. Profits of around pounds 223m ( pounds 187.4m) are expected.

United Newspapers firmed at 522p as its pounds 190m rights issue comfortably exceeded market expectations with a 95.7 per cent take-up. Many had expected the response to be much weaker. There are worries about the group's future strategy and the impact of the tabloid price war. The position of Lord Stevens, the chairman, is creating speculation.

Cable and Wireless held at 759p. Barclays de Zoete Wedd lifted its profit forecasts by pounds 20m, to pounds 1,035m and pounds 1,185m. A rumoured Smith New Court downgrading lowered BICC 8p to 398p.

Hartstone, the ravaged hosiery and leather group, was unchanged at 45p. Fidelity, the US investment group that specialises in possible recovery stocks, has increased its shareholding by nearly 1.4 million shares to 5.4 per cent.

At one time down 22.1 points, the FT-SE 100 index ended 9.8 lower at 2.814.1. The FT-SE 250 index lost 9.6 to 3,195.4. Turnover was 554 million shares with 25,990 bargains. The account ends on 30 July with settlement on 9 August. Auction fears weakened government stocks.

Budgens, the supermarket chain, edged ahead 3p to 47p as the market scented more buying by Rewe, the German group which on Monday said its stake had reached 27.02 per cent. A block of 750,000 shares may have changed hands. Budgens and Rewe, one of Europe's largest food retailers, have moved into discount selling and are opening stores under the Penny Market banner.

The growing media buying group CIA, which last month moved into Italy, is believed to be about to link with CDP, the Japanese-controlled advertising agency formerly called Collett Dickinson & Pearce, to create a jointly-owned media company. CIA has increased profits from pounds 862,000 in 1988 to pounds 3.64m last year. Kleinwort Benson expect pounds 4m this year. The shares rose 2p to 284p.