Germany's Merck Lower on Profit Shortfall
From Standard & Poor's European MarketScope
Drugmaker Roche was up 4.80 Swiss francs to 143.50 francs, after the company and American biotech firm Genentech announced that a joint interim analysis of two large North American Phase III studies showed that the use of Herceptin (trastuzumab) significantly increases survival rates for women with early-stage HER2-positive breast cancer. The brokerage Kepler noted that Herceptin sales in 2004 were 1.44 billion Swiss francs. The broker had forecast sales to reach 2.1 billion Swiss francs by 2008, excluding any major sales from the adjuvant setting, which it had expected to be approved by 2008, at the earliest. The broker pointed out that the adjuvant patient population alone is larger than the currently-labeled Herceptin population. The broker, therefore, estimates that the new indication will add at least 1.5 billion Swiss francs to peak Herceptin sales, and rates the stock a buy. The bank HSBC said the data increases its confidence in additional data to be released later this year.
Drugmaker Astrazeneca was up £0.41 to £22.96, after Deutsche Bank increased its target for the company to £24.50 from £22.50 and kept its buy rating. The bank said this is due to recent strength in the sector and also reflects the potential for pipeline-driven upside. The bank thinks that AZD0865 should deliver more rapid symptom relief and greater ulcer healing rates than Nexium, and adds that if this is confirmed in Phase II trials (which are due to report in the second half of 2005) it would boost confidence that the company can defend its GI franchise in the face of potential Nexium generic challenges. The broker added that, unlike Nexium, AZD0865 does not involve payment of a 27% royalty rate on U.S. sales to Merck.
Cleaning products company Reckitt Benckiser was down £0.38 to £16.82, after the company reported a 7% rise in first quarter net revenues to £986 million, while first quarter net income rose 20% to £124 million. Earnings per share increased 19% to 16.6 pence while operating profit is up 11% to £160 million. The company added that operating margins increased by 50 basis points to16.2% due to gross margin expansion and favorable fixed cost development, offset by an increase in marketing investment. The company said Europe provided 55% of net revenues (up 7% to £538 million) with surface care, automatic dishwashing and air care all major contributors. The results position the company well to achieve fiscal-year targets of net revenue growth of 5% to 6% and net income growth of low double digits.
Barclays bank was down £0.07 to £5.50, after the Financial Times reported that the company is prepared to walk away from taking a 60% stake in South Africa's Absa if it cannot find agreement on the £2.7 billion offer within a fortnight. Britain's third biggest bank said it had told Absa share-holders last week that it was prepared to offer 79 South African rand per share, plus a final dividend of about 1.80 rand. This would enable it to take a 60% stake in Absa, South Africa's third biggest bank by assets, for 32 billion South African rand. About 80% of Absa is controlled by 12 shareholders. Bigger investors - including Sanlam, which owns 22% - are seen as broadly supportive. But three smaller shareholders - thought to include Investec and Axa - are understood to be concerned at the price.
Drugmaker Shire Pharma was up £0.20 to £5.61, after Morgan Stanley said the acquisition of biotech company Transkaryotic Therapies, known as TKT, makes sense for the company and the price is attractive. The broker added that the acquisition will strengthen Shire Pharma's existing renal and haematology product offering and provide a pipeline to fuel longer-term growth. The broker also noted that TKT's products all have long periods of exclusivity. Morgan Stanley is the corporate broker to Shire Pharma.
Brewer SABmiller was down £0.08 to £8.05, after Belgium's InBev, the world's largest brewer by volume, reported first-quarter sales up just 4.1%, below analysts' expectations.
Renault was up €0.70 to €66.35, after the bank Sal. Oppenheim trimmed its fair value target for the carmaker to €72.6 from €73.3. The broker said that first-quarter sales fell short of expectations, on weak western European markets and lower billings to dealers due to de-stocking. However, the broker expects the launch of the new generation of Clio will lead to more pronounced volume growth again in the second half and boost sales as well as earnings. It reiterates its buy rating for valuation reasons and said it expects more positive news flow as Carlos Ghosn takes over as CEO at the end of the month.
Chipmaker STMicroelectronics was down €0.13 to €12.05, ahead of its first-quarter results report due out after the U.S. close. Sales are expected to come in at $2.12 billion, down 9% quarter on quarter. Gross margin is expected at 34%. Earnings before interest and taxes are expected at $80 million. Earnings per share, excluding impairment charges, are expected to be $0.07. The company has guided for sales decline of 4% to 12% quarter on quarter, and for gross margin of 34%, plus or minus 1%. JP Morgan is expecting sales of $2.145 billion (down 8% quarter on quarter) and rates the stock neutral. UBS estimates revenues will fall 8.8% quarter on quarter to $2.124 billion. The broker sees gross margins of 34% and earnings before interest and taxes of $79 million, and rates the stock neutral. Lehman Brothers expects sales of $2.15 billion, down 8% quarter on quarter, and earnings per share of $0.07, excluding impairment charges, and kept its underweight rating. Goldman Sachs forecasts revenues of $2.146 billion, down 8% quarter on quarter and expects earnings per share of $0.07, in line with consensus.
IT consultancy CapGemini was down €0.67 to €24.43, after Credit Suisse First Boston lifted its target to €19 from €18 and kept its underperform rating. The broker said sales of the company's North America Healthcare business marks the end of the company's unhappy time there. The broker noted that around €300 million of the company's €400 million revenue disposal program is now complete, with gross proceeds to date of €270 million.
Chipmaker Infineon was down €0.21 to €6.88, after the company reported a second-quarter net loss at €114 million, compared to a previous profit of €39 million and an estimated loss of €34 million. The company said it sees no major improvement in demand in the third quarter and sees continuing price pressure, especially for chip-cards. Second-quarter sales came in at €1.606 billion compared to €1.671 billion previously and €1.6 billion forecast. The company sees communication losses decreasing in the third quarter. The second-quarter automotive and industrial sales came in at €634 million with second quarter earnings before interest and taxes in the automotive and industrial unit falling 25% to €36 million. The communications unit reported a second quarter earnings before interest and taxes loss of €142 million with sales in the unit falling 15% to €332 million. The company's memory chip unit posted second-quarter earnings before interest and taxes drop of 91% to €17 million, with sales in the unit off 17% to €633 million. The bank Merck Finck said that in the first half of 2005, the major loss-maker was communications (which lost €142 million), but Memory Products could slip into losses in the second half of 2005, as the cyclical downswing in DRAM has only just begun. The bank said that expectations of a "significant EBIT loss" in the third-quarter of 2005 are in line with this scenario and not encouraging. The broker will cut earnings estimates for the full year.
Drugmaker Merck was down €4.37 to €58.13, after the company reported first quarter profit rose 21% to €119.6 million from €98.9 million from the year ago period. Forecasts called for a net income of €123 million. Sales rose to €1.38 billion compared to €1.28 billion last year, excluding the VWR lab business divested last year. First quarter earnings per share came in at €0.63 compared to €0.52, while first quarter earnings before interest and taxes was €196.4 compared to €188.8 million. The company sees mid single-digit sales growth in 2005. First-quarter operating profit cames in at €198.1 million, up from €188.8 million, but lower than analysts forecasts €206 million. The company sees liquid crystal sales growing like the liquid crystal display industry, and reports liquid crystal display sales rose 7.5% to 1.46 billion. The company's cancer drug Erbitux sales were up 17% at €42 million.
Sporting-goods maker Puma was down €4.50 to €187.50 after the company reported first-quarter net income at €91 million, compared to €80 million previously and slightly above the €89 million forecast by analysts. First-quarter earnings per share rose to €5.68 compared to €5, and the company reiterated its profit and sales forecasts for 2005. First-quarter earnings before interest and taxes rose 13% to €132 million. Sales rose 11.9% to €497 million. Pre-tax profit rose 13.4% to €133 million. The company said it bought back 80,000 shares in the first-quarter, and it predicts mid to high-single-digit pct growth in 2005 earnings. The company reported that operating margin rose to 26.5% and first-quarter orders rose 4.6% to €812 million. The brokerage Kepler said there's no real surprise in the results. U.S. sales growth of 30% better than expected, but flat Asian sales were below expectations, while Europe's growth of 7% was in line with forecasts, according to the broker. The broker noted that the gross margin development is pleasing.