GlaxoSmithKline was a riser on Tuesday as the FTSE 100 registered its biggest daily gain in a month.
The drugmaker hit an 11-year high on the back of an upgrade from Deutsche Bank, which argued that earnings expectations had reached a trough.
“We are at the juncture where either GSK’s broadly stable business flatlines or – more likely – enjoys long-term sales and margin expansion through a bolus of new product introductions,” it said.
Even after rallying 33 per cent this year, GSK had underperformed peers in the wake of earnings downgrades dating back to 2011, Deutsche said.
“The market now recognises the maturity of GSK’s current business and 2013 guidance looks achievable,” said the broker.
Regulatory decisions due this year could be a trigger for the stock, Deutsche continued. It saw a strong chance of approval for GSK’s melanoma and HIV treatments and for Anoro, a potential blockbuster lung-disease drug.
Trading at parity with peers, GSK would be worth £19.30 and offer one of the sector’s safest dividend yields, Deutsche argued. The stock added 1.9 per cent to £17.82, its highest since December 2001.
Fellow drugmaker AstraZeneca gained 2.7 per cent to £35.22 after agreeing to buy US fish oil drug developer Omthera Pharmaceuticals for up to $443m. Analysts expected AstraZeneca to combine the drug with its $5bn Crestor cholesterol franchise, which provides about a quarter of group sales and loses patent protection in 2016.
The wider market rebounded after two days of declines, pushing the FTSE 100 up 107.67 points, or 1.6 per cent, to 6,762.01.
Cyclical sectors led the advance, with brokers including Morgan Stanley arguing that they were likely to outperform defensives as the US outlook moves from monetary expansion to economic recovery. British Airways owner IAG took on 4 per cent to 283.8p while Aggreko rose 4.7 per cent to £18.12 and Melrose gained 3.7 per cent to 264.7p.
Dublin-based aggregates maker CRH rose 3.6 per cent to £14.40 following reports that the Irish government was assessing a €1bn investment programme targeted at the construction sector. Ireland provides about 2 to 3 per cent of CRH’s group sales, according to Goodbody stockbrokers.
US house price data and speculative theories about sector consolidation also helped CRH shares, which saw volume of more than twice the daily average.
Oil services group Petrofac gained 3.7 per cent to £13.89, helped by ABN Amro setting a £16.50 share price target.
Tui Travel rose 3 per cent to 369.2p and Thomas Cook added 1.7 per cent to 152.1p after French peer Club Med announced a management buyout offer backed by its two largest shareholders.
Leading the fallers, ENRC lost 2.7 per cent to 248p on a Sunday Times report that Kazakhmys, its 26 per cent shareholder, had “signalled privately” that it would back a takeover by its three oligarch founders and the Kazakh government. Dealers argued that, under any conventional deal structure, Kazakhmys shareholders would get a vote on the proposal.
Kazakhmys moved 2.8 per cent higher at 335.1p after selling its German copper business for €42m – a slightly better price than expected.
Severn Trent lost 0.3 per cent at £20.64 amid talk that the bid consortium led by Borealis was finalising a debt syndicate to help fund a second takeover offer, widely expected be less than £21 a share.
Victrex rose 8.4 per cent to £17.65 after unexpectedly hiking its interim dividend 15 per cent to 10.35p. Flat earnings and positive guidance from the polymer maker matched market expectations.
Persimmon rose 4.9 per cent to £12.80 and Taylor Wimpey took on 3.2 per cent to 100.8p on a rise in UK house prices.
Fashion retailer SuperGroup gained 4.6 per cent to 789p, with Merrill Lynch raising its target price to 900p.
Carpetright faded 0.9 per cent to 635.5p after Saudi investment house Olayan Group, the retailer’s second-largest shareholder, cut its stake to 13.9 per cent. Olayan has held the stock for about a decade and was a supporter of a 2007 bid attempt by Lord Harris of Peckham, its founder.
Satellite operator Avanti Communications rose 5.3 per cent to 268.5p after non-executive director Paul Walsh, the Diageo chief executive, bought stock. Separately, Natixis started coverage of Avanti with a 540p target.