Market report: Wednesday close

By Sarah Marks for MailOnline
Updated: 12:16 EDT, 12 September 2007

Drugmaker GlaxoSmithKline today appealed to investors to ignore the latest reports casting doubt on its blockbuster diabetes treatment Avandia, claiming they offered no new data.

Glaxo shares initially slid 15p to 1313p as the conclusions of two new studies, published online by the influential Journal of the American Medical Association, caused an initial panic.

One repeated the indications from earlier studies that suggested Avandia - now Glaxo's second biggest-selling drug - could increase the risk of heart attacks.

More worryingly for Glaxo, from a commercial point of view, the other report suggested that a rival treatment - Actos, from Takeda Pharmaceutical - appeared to reduce the risk to patients of heart attack, stroke and death. Since the first airing of concerns over the safety of Avandia this year, Actos has increased its hold to account for 67% of the market.

Glaxo hit back, however, insisting that the studies do 'not confirm a difference in the safety profile of Avandia and Actos'. The company also argues that 'meta-analyses', combining research from a number of studies, are not robust enough to inform doctors trying to select appropriate treatment.

Analysts said any future decision made by America's Food and Drug Administration will be critical, and the shares recovered to close at 1335p, up 7p. But HSBC reckons the reports will have an impact on Avandia sales and has slashed its forecast for the drug in 2008 by 30%. Interestingly, it emerged that today's second report was partially funded by Takeda.

After yesterday's notable run, the FTSE 100 paused for breath as investors realised that the comparable Stateside rally had not been quite so jubilant. The blue-chip index closed up 25.5 points at 6306.2 with a number of major companies going ex-dividend.

Advertising conglomerate WPP suffered a 8p decline to 679½p as Citigroup downgraded it to hold from buy, arguing that smaller agencies, with lower risks and better growth potential, look more attractive.

It thinks the larger European players will struggle to deliver further revenue growth and margin improvement beyond the fillip provided by the Olympic Games.

There was noted interest in Cadbury Schweppes, though, which overcame a pessimistic report from Deutsche Bank to rise 9½p to 575½p, with traders citing institutional fund buying. Deutsche Bank bit a large chunk off its target for the confectionery maker, marking it down 100p to 500p and highlighting Cadbury's warning that margins in the sweet businesses are under pressure.

Sometime oil and gas wonder stock Cairn Energy has high hopes for future new developments in Greenland and Tunisia. But broker Morgan Stanley reckons the market is discounting-Cairn's big story: the move to production in its giant fields in Rajasthan.

With production from India expected in 2009 and oil prices predicted to remain higher than many think, Morgan Stanley reckons Cairn, up 39p at 1887p today, should be trading at 2160p.

There was a last-minute surge in Carphone Warehouse, up 11½p at 352p, ahead of tonight's FTSE 100 changes.

Tullow Oil and Taylor Wimpey, which were last night the 75th and the 79th largest companies on the stock market respectively, will go in, in place of Segro and Drax. But Kelda's stock-market value places it at 112 so the FTSE steering committee will have to decide if it wants to boot it out and who to replace it with.

The problem with Carphone, which last night closed in 92nd place, is that well over 50% of the company is held by two directors, Charles Dunstone and David Ross. Brewin Dolphin expert Richard Lake said the committee might hesitate to promote a company with such a limited free float.

The other possible candidate is TUI Travel, whose shares were today 2½p higher at 274½ p.

TAKING STOCK: Market news at a glance

BANKING & FINANCE
Despite the claims from doorstep lender Provident Financial that it is immune to the credit-crunch crisis, analysts at Barclays are not so sure. They point out that record numbers of people are seeking debt counselling. Yesterday's optimistic results have failed to persuade it to lift its recommendation from neutral.

BUILDING & PROPERTY
Upmarket estate agent Savills has slipped back so far it is now offering good value, particularly when compared to its peers, says Numis, which is advising clients to buy below 500p. Tabloid tales of forthcoming woe in the housing market aside, Savills management is cautiously confident and has thus far delivered a solid performance.

CONSUMER
Its time to get out of DSGi, the electrical goods chain that owns Dixons, says Morgan Stanley. It has downgraded the group to underweight from equalweight, arguing that DSGi is 'more sickly than most investors realise and needs radical surgery'. It thinks Currys and PC World should be merged into a single format for starters.

ECONOMY
China's retail sales growth surged in August to its quickest pace in more than three years, beating forecasts. However, given the recent surge in inflation in the fastest-growing economy, analysts said a lot of that was due to the soaraway inflation being suffered by the Chinese as food gets more expensive there.

HEALTH
Drug manufacturer SkyePharma is once more being prescribed by analysts at Landsbanki following an agreement with the US regulators over new tests for its Flutiform asthma product. Skye has repeated its expectations that the combination therapy will be filed with the Food and Drug Administration by the second half of 2008.

INDUSTRIALS
Get ready for some impressive numbers from valve-maker Rotork later in the year. Following a chat with the company broker, Kaupthing Singer & Friedlander has pencilled in full-year profits of £57m. higher than the consensus, and reckons this will be upgraded come the trading statement in November.

LEISURE
888 Holdings is still a sell at Dresdner Kleinwort despite the broker praising its 'highly successful, profitable and strongly cash-generative online gaming business'.' While it thinks a priceearnings ratio of 18 times 2008 earnings is not overly demanding, it acknowledges this is way out of line with the sector average.

MEDIA
If Financial Times publisher Pearson does sell its 50% holding in FT Deutschland to Spiegel-Verlag, as has been rumoured, it would be marginally positive, say analysts. They add that it could also act as a catalyst to the share price, signalling that the long-awaited restructuring of the portfolio is finally under way.

NATURAL RESOURCES
Gulfsands Petroleum looks remarkably cheap according to Edison Investment. The broker notes that its recent discovery in Khurbet East, Syria, is very near existing infrastructure and therefore looks like becoming a highvalue, fast track development. New technical data already suggests the find will boost valuations.

RETAIL
Supermarkets group Wm Morrison is currently trading at a small premium to sector leader Tesco in terms of price/earnings, but this seems fair to JPMorgan. It sees a further recovery in earnings and expects Morrisons to report a 1.2% increase in operating margins next week alongside first-half profits.

SUPPORT SERVICES
A much-needed recovery at its UK operation has brought positive comments for computer services group Computacenter from UBS. The broker has repeated its buy recommendation and price target of 210p a share. It has also noted its new contract wins and positive comments in the second half.

TECHNOLOGY
ABN Amro has cut its recommendation on Fiberweb to hold from add in response to its recent profit warning. It has also slashed its forecast for pre-tax profits by 84% to £1.5m because of the high levels of debt currently held by Fiberweb. A further profit fall could see the group breach its banking covenants.

TELECOMS
Lehman Brothers says that BSkyB is one of the most compelling companies in the telecoms sector, especially as it has little faifth in the consumer media and free TV business model. Lehman says a 5% fall in advertising growth would have a 2% impact on the company's profits compared to an average 17% negative effect on free TV.

TRANSPORT
New research shows strong public support in Camden, Westminster, Lambeth and Southwark for the Cross River Tram. The findings will open the way for further feasibility studies. If it goes ahead, the Cross River Tram will be one of the biggest infrastructure projects in London since the Channel Tunnel rail link.

UTILITIES
Foreign investors, including British utility groups, will be allowed to buy up to 25% of Russian power-generating companies as a result of the privatisation of state-owned monopoly Unified Energy Systems and 20 regional generators. A stake in OGK-4, expected to raise $1.8bn (£900 million), will be auctioned on Friday.