AstraZeneca advances by 4% after results and Brilinta ruling

AstraZeneca investors have received a double dose of good news, following strong first half results and US endorsement of its blood thinning treatment Brilinta.

The company said it would double its share buyback this year to $2bn after a better than expected 9% rise in earnings. Astra has also raised its earnings per share target for the year by 30 cents to a range of $6.35 to $6.65.

Ahead of the results announcement, US advisors to the Food and Drug Administration voted by 7 to 1 to recommend approval of Brilinta for patients suffering from heart attacks or chest pains. This could pave the way for annual sales of around $1bn, giving Astra a new blockbuster to replace some of its ageing drugs which are coming out of patent. Having said that, last month a US judge upheld the patent on cholesterol treatment Crestor.

Astra’s shares have climbed 4%, up 131p to 3333.5p on the news. Savvas Neophytou at Panmure Gordon was postive on the company:

We remain conviction buyers of AstraZeneca even as the business heads into a more difficult second half of the year, with comparables relatively high on account of the non-seasonal flu vaccine sales of the second half of 2009 and Arimidex generics in the US. We note that although consensus has moved the way we had expected it to since the company provided long-term guidance in January 2010, consensus forecasts for 2014 in particular remain persistently below our forecasts and we can expect as much as 17-20% upgrades to 2014 consensus in the next few months. These could start as early as today following Brilinta endorsement by an FDA advisory panel.

The shares are trading at a discount of around 15% to the large-cap European pharmaceutical sector on a PE of 8.8 times for 2011. With a dividend yield of 4.9%, we believe that most of the risks are adequately reflected in the price. We maintain our buy recommendation and price target of 3600p.

Not everyone was convinced, however. Dominic Valder at Evolution Securities said:

As expected, the second quarter 2010 results were overshadowed by the broad recommendation by the FDA panel on Brilinta. The panel voted 7 to 1 for the approval of Brilinta in all major forms of Acute Coronary Syndrome and also in medically managed, as well as sicker patients at risk of an invasive procedure. The breadth of the recommendation is a net positive for Astra.

We have $1bn sales for Brilinta already included in our model for 2014, so do not anticipate changing our forecasts, at least until we have a better view of prescription trends, assuming the FDA agree with the panel’s approval recommendation. In themselves, the numbers were typical AstraZeneca – in line at the top, with a beat at the core earnings level. However we note a miss on basis of reported earnings, if people look past the headlines. We retain our long term sell rating, driven by the lack of sustainable core. Brilinta, alone, is not sufficient to change this.

Connaught shares climb after agreeing overdraft facility

Connaught, the cash strapped social housing company, has climbed nearly 11% after agreeing a short-term £15m overdraft facility.

Earlier this week the company warned it was close to breaching the terms of its loans, but today it unveiled not only the £15m short term facility but also said interest and principle payments on its existing facilities due in July and August would be deferred.

The company has been under severe pressure since a shock profit warning on June 25, which it blamed on the government’s public sector spending cuts. Chairman Sir Roy Gardner has put together a new management team to try set the company back on track and today he said:

We are delighted by this tangible evidence of support from our lenders. We will now seek to put in place arrangements which will leave Connaught on a more secure footing for the longer term.

The company’s shares have climbed 3.35p to 34.35p. Analyst Richard Bennett at Altium Securities said:

Management has agreed an additional short term overdraft facility pending conclusion of discussions aimed at agreeing increased longer term facilities. The need for an additional £15m overdraft in addition to the existing £200m facilities indicates that gross debt is likely to peak close to or above £200m.

This level is considerably above earlier guidance of £120m. We believe that Connaught has historically run with average debt levels significantly above those reported at year end due to aggressive management of supplier and subcontractor payments in the run up to year end. We believe that Connaught’s reference to supplier pressures in their statement on cash position earlier in the week may imply that suppliers and subcontractors have been less willing to accommodate its year end cash management requirements in the current circumstances than in previous years with the result that the expected working capital inflow in July and August is unlikely to materialise, causing this significant shortfall in anticipated year end net debt compared to earlier expectations.

Today’s announcement suggests that Connaught has sufficient liquid resources for the short term although management of a longer term solution remains key to the outlook.

We take some encouragement from the calibre of the team currently working towards a positive resolution of the funding situation.

Until the company is able to provide trading guidance and clarity on the long term funding situation, our forecasts, rating and price target remain under review.

PartyGaming jumps by 25% after €2bn Bwin merger

PartyGaming shares have jumped by around a quarter after it confirmed its long expected merger with Austrian rival Bwin to create the world’s biggest listed online gaming business.

The two companies have been in talks for more than a year, and today they announced an all share deal worth more than €2bn, which is expected to be completed in the first quarter of next year. The deal sees PartyGaming shareholders owning 51.64% of the enlarged group, which will be listed in London. It will be run jointly by the current chief executives of the existing businesses, Jim Ryan of PartyGaming and Norbert Teufelberger of Bwin. The companies said it was a merger of equals and a “transformational opportunity.” Further acquisitions after the deal is finalised are also possible.

The news follows the latest stage in the deregulation of the key US market, when a senate committee voted through Barney Frank’s online gaming bill. The next step would be for it to be put to the vote by the House of Representatives. Collins Stewart analyst Simon Davies said:

At this stage it is probably the most positive step towards the reopening of the US online gaming market since 2006. The US market was 50% of the global online gaming market prior to it being “closed” and is still 25%. PartyGaming was set to make $750m of profit in 2006, prior to withdrawing from the US and is set to make only $140m this year.

There is still considerable uncertainty as to whether it will be voted through by the House of Representatives. This is not a vote winner and there are mid-term elections coming up. Nonetheless, there is an accompanying piece of legislation which would lay out a structure for taxing online gaming, and claims it would bring in $43bn of tax in the first 10 years, so there is a strong financial rationale. And there is a chance that it could be attached to a piece of separate legislation.

PartyGaming shares are 61p higher at 318p, while Bwin shares jumped 12% in Vienna before being suspended.

Fall in US jobless claims lifts Wall Street and FTSE

A set of reasonable US figures has been seized upon by the markets, sending Wall Street higher in early trading.

Weekly jobless claims fell by 11,000 to 457,000, some 2000 lower than forecasts. So the Dow Jones Industrial Average is currently around 70 points higher, while the FTSE 100 is hovering around its high for the day at 5368.40, up 48.72 points.

Next week sees the monthly manufacturing survey at the start of the week and non-farm payrolls at the end. As RBS says, “That will give us the latest instalment on the ‘double-dip or not’ story and everything else is on the periphery of market attention in these holiday-thinned markets.”

Gourmet Burger Kitchen owner Clapham House jumps on bid approach but FTSE falters

Investors tucked into Clapham House after the owner of the Gourmet Burger Kitchen chain revealed a bid approach.

Analysts believe the predator is likely to be Capricorn Ventures, which has been building up a stake since the end of 2007 and now holds 27%. Capricorn, an investment vehicle controlled by the Enthoven family, has previously been involved with Pizza Express and now owns the Nando’s brand. News of the approach sent Clapham House 11.5p higher to 73.5p.

Analysts believe an offer of between 80p and 100p would be enough to win the day, valuing the business at up to £41m. Mark Brumby at Langton Capital said:

Putting Nando’s and Gourmet Burger Kitchen together would be a pretty solid proposition.

Clapham House recently announced a 50% rise in full year profits, alongside a plan to sell some of its products through Waitrose and Ocado. It admitted it had been hit by the World Cup and said the rest of the year would be challenging. As well as Gourmet Burger Kitchen, its other remaining brand is The Real Greek following the collapse of the Tootsies business.

Overall the FTSE 100 ended down 5.73 points at 5313.95, having been sharply higher for most of the day after a generally encouraging run of corporate results. But it came off its best levels as Wall Street turned negative towards the close of London trading, hit by falls in banking shares. Giles Watts, head of equities at City Index, said:

The rather dramatic way indices sold off will remind investors that with thinning volumes, [markets] could become more volatile, particularly as we head deeper into the summer months.

Reed Elsevier was the leading FTSE 100 riser after its results beat expectations. The publishing group said first half revenues grew by just 1% while operating profit fell 3% to £758m, but both these figures were better than City estimates. Reed is seeing signs of improvement in its exhibitions business while the advertising market is also stabilising. Despite indicating the recovery will be gradual, the company’s shares climbed 20p to 552p. Investec said:

Reed has this morning reported what we believe to be a solid set of first half numbers against relatively low expectation. The company has come in ahead of our estimate at every level (we were ahead of consensus). We expect to tweak forecasts up on the back of these better than expected results and retain our buy recommendation.

Over at Numis, Lorna Tilbian said:

We retain our view that Reed has world class assets, particularly in scientific, though our top down preference remains for groups which offer more cyclical recovery potential. We are raising our target price to 550p (was 525p) and our recommendation remains hold.

Also benefiting from positive results announcements were BAE Systems, 3.1p better at 320.1p, and electronics group Laird, up 10.3p at 120p.

Kazakhmys climbed 23p to £12.20 after it said its full year production target was still in reach despite a 3% dip in the first half figure. Rio Tinto rose 32.5p to £33.55, as it confirmed a joint venture with Aluminium Corporation of China to develop the Simandou iron ore project in Guinea.

But Rexam, the world’s biggest maker of drink cans, lost 11.1p to 316.5p after Credit Suisse cut its rating from outperform to neutral and its price target from 375p to 360p in the wake of this week’s results. The bank said:

We downgrade our 2011 and 2012 earnings estimates on an expected weaker outcome from major contract negotiations in the beverage can business. It now appears material volumes [in North America] will be lost to competitors. Rexam expects North American 2011 beverage can earnings to remain flat on 2010; we had expected a material improvement. The near term outlook is a set back in the long term rerating story and we struggle to see the catalysts for the share to perform in the near term.

PartyGaming jumped 52.5p to 309.5p as it unveiled its long awaited merger with Austrian rival Bwin, while bingo hall and casino operator Rank rose 7.8p to 117p after reporting a rise in first half profits from £24.7m to £25.1m. KBC Peel Hunt moved from hold to buy, saying:

Against a tough backdrop Rank has delivered a solid first half. Grosvenor [casinos] continues to be the star of the show, but Mecca has also shown its first growth in customer visits for a decade. With debt down to £133m, the group also has the balance sheet to increase investment in core areas. In an uncertain market, Rank should continue to outperform.

Builders’ merchant and Wickes owner Travis Perkins climbed 29p to 859p as it beat forecasts with a 24% rise in half year profits, and said its purchase of plumbing and heating group BSS would help make up for the effects of government cutbacks on new public sector building projects.

Dollar sinks on recovery doubts

The dollar continued to slide this week, hovering near monthly lows versus major currencies as worries about an economic slowdown weighed on investors.

Stocks fall on economic fears

Stocks fell Wednesday as a worse-than-expected report on durable goods orders and weaker quarterly results from Boeing and others added to concerns about the pace of the economic recovery.

Stocks edge lower

Stocks slid Thursday, although they finished off their session lows, as investors weighed cautious comments from a regional Federal Reserve president about the health of the economy and a mix of quarterly profit reports.

Oil drifts off 11-week high

Oil prices drifted lower this week, edging off last week’s 11-week high above $79 a barrel. But trading remained rangebound as investors balanced strong corporate earnings against ongoing jitters over the economic recovery.

InterContinental Hotels drops 7.5% as Barclay brothers sell 10% stake

The Barclay brothers, owners of the Telegraph newspapers and the Ritz hotel, have raised around £335m by selling their shareholding in InterContinental Hotels.

The brothers’ Ellerman Corporation sold its entire 10% stake - 29.9m shares - at £11.20 each in a placing conducted by Barclays Capital. The news sent InterContinental’s shares down 89p to £11.10, making it the biggest faller in the FTSE 100.

Ellerman bought into the business at the end of 2006 and took the stake up to 10% in May the following year, prompting speculation the brothers might be interested in buying the whole business, although many analysts questioned whether it would fit with their existing operations.

Traders said their original purchase price was close to the current share price, and they had probably been waiting until InterContinental’s shares recovered before contemplating a sale. In recent weeks InterContinental, which owns the Holiday Inn and Crowne Plaza brands, has been lifted by a successful investor roadshow, and by positive comments on current trading by rivals such as Starwood.

Overall the FTSE 100 finished 14.55 points better at 5365.67, its highest level since 13 May. However some of the early shine was taken off following a drop in US consumer confidence figures.

Bank shares continued to be buoyed by the results of the European stress tests, which were released on Friday evening and showed UK banks in a relatively strong position. Lloyds Banking Group led the way, up 5.8p to 71.80p while Royal Bank of Scotland rose 3.68p to 50.35p and Barclays was 23.9p better at 339.55p. Sentiment in the sector was also helped by reasonable results from both UBS and Deutsche Bank, as well as certain amendments published last night to the Basel 3 capital and liquidity proposals first issued last December. Jonathan Pierce at Credit Suisse said the proposed changes seemed favourable to the UK banks, especially Lloyds:

Previously we assumed that Lloyds would not be able to start paying dividends until at least [2013] because of the Basel 3 measures. On this basis, the dividend paying capacity of Lloyds has likely been pulled forwards. It remains our favourite UK bank for now.

Elsewhere AstraZeneca added 63p to £31.89 after the US Food and Drug Administration issued briefing documents ahead of a review meeting tomorrow about the company’s experimental blood thinning treatment Brilinta. The FDA comments were mixed but not as critical as some commentators had feared. Savvas Neophytou at Panmure Gordon said the FDA reviewers had been “relatively benign.” He added:

Some analysts had expected the agency to request further trials in US patients before approval, so a positive endorsement on Wednesday/today should go a long way towards triggering upgrades. We reiterate our buy recommendation and £36.00 price target.

Astra is due to report second quarter results on Thursday.

Heritage Oil was 4.5p higher at 415p after it completed its long awaited sale of its stakes in two oil fields in Uganda to Tullow Oil, up 34p at £12.73. Tullow has paid $1.45bn in cash, and $405m of that has been set aside to resolve a tax dispute with the Ugandan government. Heritage plans to pay a 100p a share special dividend in August. Evolution Securities analyst Richard Griffith said:

Concluding the disposal of Uganda in our view highlights the undervaluation of Heritage’s exploration and appraisal assets in Kurdistan. We believe that today’s news should be a catalyst for a re-rating of the shares and we reiterate our buy recommendation.

Care home operator Southern Cross added 6p to 35.5p on takeover talk, while lower down the market Ceres Power climbed 8.5p to 81.5p after four directors including chairman Brian Count and chief executive Peter Bance increased their shareholdings in the fuel cell specialist.

Horizonte Minerals rose 2p to 10.75p on news it had bought the Araguaia nickel project in northern Brazil for £7.5m from Canadian miner Teck Resources. The all share deal will give Teck a 50% stake in the group, which has also raised £5.13m by issuing new shares to institutional investors at 10p each. Horizonte’s chief executive Jeremy Martin said:

This is a transformational deal for Horizonte. We now have a major mining company as a key shareholder, a world-class nickel project with significant upside and a fast track development plan, all underpinned by institutional shareholders who have invested £5.13 million in the enlarged company.

Finally Berkeley Minerals - which specialises in processing mining tailings or leftovers - added 0.15p to 1.95p after it said it expected to start sales of metal stockpiles in September. More news from the company is likely in the next couple of weeks.

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