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FT.com site: FTSE down as oil losses offset telecoms gains

By Vince Heaney, FT Investor, FT.com site
Published: Jul 15, 2002

London’s stocks renewed their slide in afternoon trade on Monday. The banking sector joined oils and drugs in the red and a mid-session recovery in telecoms proved short-lived.

Shell was under pressure on accounting concerns, while selected drug moved lower as investors worried about the prospect of further expensive acquisitions after Pfizer confirmed it was to buy rival Pharmacia in a $60bn all-stock deal.

The FTSE 100 traded 1.5 per cent weaker at 4,159.1 and the FTSE Techmark was 1.4 per cent weaker at 773.2.

In the currency exchange market the euro breached parity for the first time since February 2000, it stood at $1.0037 by 1500 GMT.

Troubled alternative network carrier Energis said it was in advanced talks that if concluded, would result in its business being sold to a company set up by its banks and bondholders.

If successful, a new body led by the banks and called Chelys, would take the UK operations of Energis private. It would inject new cash and is expected to agree a long-term moratorium of bank interest payments. The shares were 29 per cent lower at 0.84p.

Elsewhere in the telecoms sector mobile phone operator Vodafone fell 1.1 per cent and MM02 fell 4.8 per cent despite a broker upgrade. Incumbent BT Group traded 0.2 per cent weaker.

Oil major Shell traded 2.7 per cent lower after The Financial Times reported concerns over the accounting treatment of its energy trading derivatives. George Naumur, a former general manager at Shell’s Houston operation alleges that he was told to come up with optimistic forecasts of future power and gas prices that would justify the derivatives deals. Shell insisted that the accounting treatment of the deals was “conservative”.

Rival BP also dropped in morning trade, trading 3.6 per cent lower.

Centrica , the energy supply and home services group, which fell 5.7 per cent on Friday on rumours of financial irregularities, that it later denied, renewed its slide on Monday. The shares fell 4.1 per cent as accounting concerns remained prominent in investors’ minds.

The drug sector was in focus after newspaper reports that Pfizer has agreed to buy rival Pharmacia in an all-stock deal valued at $60bn.

The need for the major pharmaceutical companies to combat generic competition and launch new drugs could focus attention on the possibility of further sector consolidation in the wake of the Pfizer deal.

“There’s a little bit of speculation that this will start another round of global consolidation and that investment bankers will be sharpening their pencils,” said Peter Cartwright of Williams de Broe.

“There is some evidence that the drug industry is following the model of market leaders becoming primarily marketing companies with many new products coming in the form of licensing agreements,” Mr. Cartwright added.

UK drug heavyweights GlaxoSmithKline dropped 2.3, while Shire Pharmaceuticals fell 2 per cent, as investors considered the prospect of potentially expensive acquisitions. Bucking the trend, AstraZeneca recouped losses to gain 0.4 per cent.

After a choppy morning session financial stocks waned in afternoon trade. Barclays fell 2.5 per cent while Lloyds TSB fell 2.6 per cent and sector heavyweight HSBC Holdings erased early gains to trade 1 per cent lower.

Life assurer Aviva, formerly CGNU, added 0.5 per cent but Prudential edged 0.8 per cent lower and Legal & General fared worse down 1.5 per cent.

US markets are expected to open slightly firmer on Monday. Based on pre-market futures trading the Dow Jones Industrial Average is expected to gain 2 points and the Nasdaq Composite is seen adding 4 points.

Orchestream, the network management software group, slumped 35 per cent after it said it would adjust full-year 2001 sales downwards by £2.7m and that 2002 sales were expected to be £1.6m. The company said that it had £10m cash at June 30 and would cut quarterly costs by £1.1m to £3.1m by August 2002.

Property company Land Securities said it would return £541m of capital to shareholders. Investors are to receive 7 new shares and 8 B shares for every 8 current shares, in the capital return worth about 102p per share. The shares traded 0.9 per cent firmer.

Mothercare, the baby and children’s wear retailer, was 20.3 per cent lower after it reported a 3.1 per cent drop in UK like-for-like sales in the 14 weeks to July 12. The company said that first-quarter losses before tax would be larger than expected at £5.4m and that the rest of the first-half would continue to be loss-making. Chris Martin, CEO, will leave the company immediately.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellnazihistory.com, shellnews.net and cybergriping.com are all owned by John Donovan

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