Baker Street, London -- In a morning of unexpected movements the London market ignored fears of further falls on Wall Street and opened sharply ahead. After yesterday's seventh decline in a row, many commentators suggested the FTSE 100 might drop below the 6,000 mark today but instead the index started to reverse some of its 6.2% fall.
A string of positive trading statements as the interim reporting season swung into view, as well as renewed corporate activity, helped lift the blue chip index. Recently the mid caps have attracted more attention than the larger stocks but today this trend was also bucked as out-of-favour FTSE 100 stocks came back into demand.
Reckitt & Colman(LSE: RCOL), which has been in freefall for the past year, jumped 92p to 793p as a merger with fellow household products group Benckiser, a Dutch company, was announced. The combine will have a value of £4.86b and net turnover per year of £3.12b. Under the proposals, Reckitt shareholders will end up with 59.1% of the new entity. However, several analysts believe this is a desperate measure, which still makes Reckitt look cheap. The company may attract rival take-over approaches. This talk lifted rival Unilever (LSE: ULVR) 7p to 589p.
Barclays (LSE: BARC) finally appointed another chief executive. This reassured followers of the bank, who hope 54-year-old Matthew Barrett will last longer than Michael O'Neill, who lasted just one day in the job before resigning on health grounds. Barrett joins from the Bank of Montreal, where he has spent his entire career, ending up as chief executive and chairman. The market gave the group a boost, sending the shares up 71p to 1775p.
Securicor (LSE: SCR) moved ahead 44.5p to 589p as the group said BT (LSE: BT.A) will pay £3.15b for the remaining 40% stake in mobile telephone operation Cellnet, which it does not yet own. Although some analysts said this was cheap, Securicor still attracted buyers on suggestions that the group will return some of this excess cash to shareholders. BT ticked up 51p to 1102p.
The main casualty this morning was the IT sector, after it was hit by the double whammy of falls in the US technology sector yesterday and Admiral's (LSE: ADC) interim results, which were released this morning. Admiral was on the slide all morning, down 117.5p to 695p. Not wanting to be left out, Misys(LSE: MSY) fell 16p to 544p, Logica(LSE: LOG) by 23p to 708p, and CMG(LSE: CMG) by 18p to 1787p. Royalblue(LSE: RYB) also succumbed to some profit-taking after yesterday's results, falling 15p to 552.5p.
Another company suffering from the post-result blues was Waste Recycling Group(LSE: WRC). Cautious press comment resulted in a slip of 18.5p to 415p.
Some water companies also fell following industry regulator OFWAT's proposals for an average price cut of 13.7% for next year. Yorkshire Water(LSE: YW.) was the chief loser, down 25p to 468.5p.
Apparently a small Internet company called Freeserve(LSE: FRE) started trading yesterday. It slid below the magic 200p barrier, falling 7.5p to 198.5p.
Admiral(LSE: ADC), the high-flying computer software consultancy company, reported interim results this morning. Despite registering a 29% increase in turnover to £84.9m, a 7% increase in adjusted profit before tax (PBT) to £ 11.1m and a 10% increase in earnings per share (EPS) to 11.6p, the shares lost 80p.
The reason for that fall can be found in the Chairman's statement, where he talks of the first half as a "challenging period". The company had warned earlier that profits would be below expectations, and indeed they were. Project deferrals and lower utilisation rates were the main culprits, but management has said it has taken action to correct the shortfall. Staff numbers rose to 2,569 from 2,475 at the start of the year, but with a lower churn rate and lower utilisation rates it is proving hard to get the right balance.
Admiral is pushing ahead with AIMS (Admiral Information Management Strategy), which it says is an essential investment in the company's future. It will allow the company to pass knowledge between operating and corporate units. It won't be in full operation until next year and the costs associated with it have reduced profits. Adjusting for these effects raises the PBT growth to 17% and EPS growth to 18%.
A breakdown of divisions by turnover shows that Computing is the largest, at £41m, followed by Management Services at £27m, Systems and Networks at £9.5m and Training at £6.9m.
Admiral said in its statement that it does not expect to see a substantial improvement in the underlying rate of profit growth. The market has already sensed this and that is why the shares have declined from the peak of 1472p in July last year to the current level of 715p, although they did drop to 662.5p in the October crash last year.
Estimates of EPS for this year are still being revised down, and the average of 12 forecasts for 1999 currently stands at 28.8p, and for 2000 at 35.2p. Despite this forecast 22% growth rate, analysts are not very bullish on the stock with only one buyer, two neutrals and one seller. In fact it is likely that earnings forecasts will be cut again. One last point to note is that Ceri James, one of the co-founders, will retire in July, leaving Clay Brendish as Executive Chairman. Will that raise succession questions? Answers please to the Lunchtime Fool message board or the cobweb infested Admiral board.
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