LONDON MARKET OPEN: Hikma Leads Fallers On Generic Business Weakness

LONDON (Alliance News) - London's main indices opened lower Monday, with several broker downgrades driving stocks down, while Hikma Pharmaceuticals was the worst faller after a weaker than expected performance in its Generics business.

The FTSE 100 index opened down 0.5% at 6,328.98 points, the FTSE 250 was down 0.1% at 17,108.07, while the AIM All-Share was up 0.2% at 739.15.

Hikma Pharmaceuticals, down 5.8%, said trading across the majority of the business has been solid in 2015 but said its Generics division is performing below expectations due to slower-than-expected colchicine sales growth.

The company said it has seen continued strong demand for its legacy products within the Generics business, with any declines in line with its expectations due to greater competition. But colchicine, its gout treatment, has suffered due to Hikma having to sell the drug under both the Mitigare brand name and as an authorised generic version.

This 'hybrid' brand strategy has meant growth in sales of the drug has been "more gradual" than expected, Hikma said, and it has cut its revenue guidance in the Generics business to USD150.0 million for the full year, down from USD175.0 million to USD200.0 million previous.

Panmure Gordon analyst Mike Mitchell said that "with the lowered expectations for the Generics business, we will be reviewing our estimates which are currently broadly in-line with consensus and we expect the market to respond to the new lowered guidance."

Shares in Irish budget carrier Ryanair Holdings were down 1.3% in Dublin, even though it said it expects its full-year net profit to be at the top end of its expectations, as it raised its passenger traffic target following increases in revenue, post-tax profit and customer numbers in the first half.

Ryanair said after-tax profit for the half year to the end of September was EUR1.09 billion, up from EUR795.00 billion a year earlier. The profit excludes a one-off gain made from the sale of its stake in Irish flag carrier Aer Lingus Group to International Consolidated Airlines Group, the owner of British Airways.

Thanks to the strong performance in the half, Ryanair raised its financial year 2016 traffic target to 105.0 million customers, up from 104.0 million previously, based on expectations for higher load factors in the second half and a forecast for traffic to grow 17% in the third quarter and by 22% in the fourth quarter.

"This is a strong first half update, although the weaker recent pricing expectations for the fourth quarter of 2016 may cause some concern and, as per other airlines' results last week, the outlook is marginally softer than the reported figures," said Nomura. "We retain a more cautious view into higher winter capacity from the market leaders. However, market demand and improving macroeconomic conditions support both our Buy rating on Ryanair and Bullish sector stance."

FTSE 100-listed airlines EasyJet and International Consolidated Airlines Group were down 3.3% and 2.3%, respectively, after HSBC cut its recommendation in the carriers. The bank cut easyJet to Reduce from Hold, while it downgraded IAG to Hold from Buy.

Meanwhile, shares in housebuilder Barratt Developments were also sold, down 1.6%, after being downgraded to Neutral from Overweight by JPMorgan Cazenove. The broker also cut fellow blue-chip housebuilder Persimmon to Underweight from Neutral, sending the stock down 1.5%.

Compass Group was down 1.5% after Credit Suisse cut the catering and outsourcing company to Underperform from Neutral.

In Europe, the CAC 40 in Paris was down 0.6% and the DAX 30 in Frankfurt was down 0.5%.

In the economic calendar, Markit manufacturing PMI readings are due from France at 0850 GMT, Germany at 0855 GMT, the eurozone at 0900 GMT, the UK at 0930 GMT, and the US at 1445 GMT. There also is the Institute for Supply Management manufacturing PMI at 1500 GMT, alongside US construction spending.

Rhys Herbert, senior economist at Lloyds Bank said that, with world trade sluggish, the manufacturing sector seems to be under pressure everywhere.

"The 'flash' indicators, however, suggested that manufacturing activity in the euro area was relatively resilient in October and the final figures are expected to confirm this picture," noted the Herbert. "In the UK, the slowdown looks more abrupt... Consequently, we look for another fall in the headline index to 50.7".

According to FXStreet.com, economists look for the UK manufacturing PMI to come in at 51.3, after a previous reading of 51.5 in September.

Meanwhile, China's manufacturing sector continued to contract in October, survey results published by Caixin and Markit Economics showed Monday. The manufacturing PMI rose to 48.3 in October from 47.2 in September, but it came in below expectations of 50, the pivot between expansion and contraction.

Total new business decreased only moderately on the back of an increase in new export orders for the first time since June. Consequently, output and employment shrank at slower pace in October. Meanwhile, purchasing activity and inventories of inputs continued to fall amid reports of lower production requirements.

CMC Market analyst Michael Hewson highlighted that the reading is still well below the level seen on the same month last year of 50.8, and that it showed a third consecutive monthly contraction.

On Sunday, the official manufacturing PMI, released by the China Federation of Logistics and Purchasing, remained unchanged at 49.8 in October. At the same time, official data also showed the non-manufacturing PMI slid to 53.1 in October from 53.4 in September.

The Hang Seng index in Hong Kong closed down 1.2%, while the Shanghai Composite ended down 1.7%. The Japanese Nikkei 225 index closed down 2.1%.

Meanwhile, Wall Street ended lower Friday. The DJIA and the S&P 500 both ended down 0.5%, and the Nasdaq Composite finished down 0.4%.

By Daniel Ruiz; danielruiz@alliancenews.com

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