FTSE flounders on LloydsTSB rumours

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The FTSE 100 ended the final day of the third quarter in the red yesterday as Boots reported a squeeze on margins and rumours circulated about Lloyds TSB issuing a profit-warning.

London’s benchmark index closed 0.4 per cent down at 4,570.8, while the mid-cap FTSE250 rose 0.1 per cent to 6,269.1. Trading volume was 3.5bn.

During the third quarter the FTSE 100 rose 2.4 per cent, hitting a closing high of 4,608.4 on September 21, its highest level for more than two years. While the FTSE250 fell 0.2 per cent in the last quarter, since the start of the year it has risen nearly 8 per cent, outstripping the benchmark’s 2.3 per cent rise thanks to private investors chasing mid-cap bid potential in the second quarter.

Lloyds TSB was off 1 per cent at 431.5p on talk the management was revising down profit expectations. Brokers who spoke to the bank said the denial was forthright.

Boots fell 2.9 per cent to 642p as the retailer’s trading update revealed price cuts and bad weather in the summer had resulted in a greater than expected squeeze on profit margins. Boots said its gross margins were around 180 basis points lower in the first half of 2004/05 compared to the previous financial year. While like-for-like sales at the core Boots the Chemist business rose 3.8 per cent in both the second quarter and the first half of the current financial year, Boots said there was still a great deal to do to achieve its plans for the full year.

Richard Ratner of Seymour Pierce, said: “What the chief executive Richard Baker is trying to do is both correct and long overdue, but we “We believe that Boots will continue to be squeezed by the superstore operators. Thus, margin pressure is likely to continue.”

Drug stocks were hit by Merck’s withdrawal of Vioxx, its anti-arthritis drug. Shire Pharmaceuticals shed 1.6 per cent to 522.75p, AstraZeneca was off 0.6 per cent at £22.65 and GlaxoSmithKline dropped 1.5 per cent to £11.91, although there could be benefits for its 381 rheumatoid arthritis treatment, which is undergoing trials.

MMO2 added 2.6 per cent to 98.25p after the mobile phone operator said UK operations would report higher than previously expected net service revenue growth for the full year. Vodafone rose in sympathy, up 1 per cent to 132.25p.

Sir Richard Branson’s Virgin Mobile fell 4.5 per cent to a new low of 174¼p and a 13 per cent discount to its 200p flotation price. The mobile phone operator disappointed earlier this week with service revenue growth guidance for 2005 towards the bottom of expectations.

BAE Systems, the aerospace and defence company, added 1.2 per cent to 224.75p after the German defence minister urged the British government to speed up its commitment to the second production tranche of Eurofighter jets.

Merrill Lynch reiterated its “buy” stance on BAE Systems and addressed speculation the company is poised to sell its 20 pct stake in Airbus. The broker said it believes selling the stake “is not currently on the agenda” and stuck with its 235p pence price target, which assumes that Eurofighter Tranche 2 is signed and 6 per cent margins are achieved in 2006.

Goshawk, the insurer, held takeover talks with Nikko Principal Investments in the yesterday morning, only to reject the cash offer by the early afternoon. The shares rose to 49.5p but then settled back to 46p a 2.8 per cent rise with Nikko saying its offer “warrants further discussion and we will be seeking to achieve that”.

A positive trading statement saw ICAP rise 5.6 per cent to 220p. The world’s largest interdealer broker said it was on track to improve underlying pre-tax profits and match current market expectations of up to £178m for the full year thanks to cost-cutting and despite in spite of the weak dollar.

Man Group recovered some of Wednesday’s fall, rising 2.9 per cent to £11.89 as the hedge fund group found support from Lehman Brothers. The broker said the market reaction to the hedge fund group’s trading update was inappropriate and the the growth assumptions implied by the current market price were unrealistically pessimistic.

ITV put on 3.1 per cent to 107.75p after Ofcom, the regulator, ruled that the television company would not have to fulfil all its public service broadcasting agreements, opening the way for ITV to concentrate on more revenue generating commercial scheduling.

Lastminute.com added 4.5 per cent to 140p as Morgan Stanley forecast the online leisure group would indicate summer trading has been being in line with expectations.

BTG lost 25.8 per cent to 98p after the technology development group said further clinical trials data on a reformulated version ofVarisolve, its varicose vein treatment and its key product, will not be ready to submit to the US Food and Drug Administration until mid-2005 at the earliest. The company’s shares more than halved in value last November when the FDA raised safety fears about Varisolve. BTG had hoped to deliver new data in November.

Smith & Nephew put on 1.2 per cent to 508p following talks with analysts ahead of third-quarter results. The medical devices manufacturer appeared confident of meeting forecasts.

IP2IPO, which commercialises university technology, was up 1.8 per cent at 680p after Vastox, the biotech company in which it owns a 20 per cent stake, announced it would become the second of IP2IPO’s spin-outs to float on AIM.

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