Market Report: Soaraway GSK is hit by broker downgrade

ABN Amro called time on GlaxoSmithKline's soaraway share price yesterday, leaving the drugs giant 27p weaker at 1,401p. Although the Dutch broker expects a robust set of third-quarter results from GSK later this week, it believes this is already factored into the group's stock price.

ABN said: "For the rest of 2005, we expect positive newsflow but this is now broadly priced in." Hence, it cut back its recommendation on GSK to "hold" from "buy". ABN is also cautious about the group on a longer-term view. It agrees that GSK has an impressive pipeline of new products but forecasts a limited share price performance from the drugs giant over the next year.

It told investors yesterday: "A well executed return to robust earnings growth has driven the GSK shares up 20 per cent in the year to date. We see more limited upside over the next 12 months and at the current share price would await further proof of successful research and development execution before turning more positive on the stock."

Elsewhere, Marks & Spencer finished the day as the top blue-chip performer, up 14.5p to 415.75p. Dealers reported a plethora of stories about the retailer. Some repeated the old rumour of a private-equity bid for the group, while others talked of a possible tie-up between M&S and Sainsbury's. The most likely reason for yesterday's share price jump is that long-term bears of the stock have finally thrown in the towel and closed their short positions. Anyone who has been short of M&S over the past month will have felt significant financial pain. The stock has soared by 20 per cent in the past four weeks alone.

ITV fell 2.5p to 101.75p despite news that Brandes Investment Partners has taken a 3.8 per cent stake in the broadcaster. The US fund manager was among the few investors who were busy buying into M&S back in 2001. In those days, the retailer was totally unloved and traded at below 200p.

O2 put on 1.75p to 160.5p after Deutsche Bank suggested the mobile phone group has the scope to introduce a major rise in its dividend next year. In the meantime, should a bid emerge for O2, it will have to be pitched at a minimum of 200p if it is to be successful, according to the German broker.

Deutsche believes the mobile phone group remains one of the fastest growing companies in Europe. In the first half of this year, it should notch up a 17 per cent jump in earnings, while its free cash flow is likely to have nearly doubled as business continues to boom at its German division. Elsewhere in the sector, Cable & Wireless put on 3.5p to 110.5p amid rumours that France Telecom is about to pounce on the alternative carrier.

Barclays added 3.5p to 551p as Morgan Stanley repeated its "overweight" stance on the stock and set a 650p price target. Although there are concerns about bad debt at the group's Barclaycard division, Morgan Stanley believes any losses there will be offset by a strong performance at Barclays Capital, the group's investment banking operation. For a second day, Lloyds TSB, up 2.75p to 453p, was boosted by takeover speculation.

Electrocomponents fell 4.25p to 225.5p as Credit Suisse First Boston advised its clients to steer well clear of the stock before first-half results from the electronics distributor on 8 November. The Swiss broker said: "The interim figures are likely to not only reveal tough trading but also give the impression of a group struggling to find direction." CSFB downgraded its stance on the stock to "underweight" from "neutral" and cut its price target to 200p.

Numis Securities agreed with recent suggestions that BetonSports, unchanged at 139p, is vulnerable to a takeover. It was sceptical that PartyGaming would want to buy the company but hinted that its rival Sportingbet might be interested given its success in making money from both sports betting and online poker. The main reason why Numis views BetonSports as exposed to a bid is its lowly valuation. The group's shares trade at just seven times forecast earnings for next year. That is a 50 per cent discount to Sportingbet.

Imperial Energy rose 31.5p to 432.5p after taking full control of one of its major prospects in Russia. Also boosting the shares were a series of director share purchases. Rupert Kidd, Imperial's chief executive, bought 6,000 shares at 420p, while Guy Smith, the finance director, picked up a more modest 2,000 shares at the same price. Pierre Godec and Kenneth Forrest, both non-executive directors, bought tranches of 10,000 shares each at 420p.

Finally, Internet Business Group rose 1p to a three-year high of 17.25p after securing £400,000 from a fund raising. Among those putting fresh money into the online market group was its finance director Pierre Jean De Villiers.