Market Report: Zimmer provides support for Smith & Nephew

Smith & Nephew received a welcome boost yesterday from Zimmer, its US rival, sending shares in the orthopaedics group near to the top of the FTSE 100 risers list, up 8p to 532.5p. It was Zimmer's first-quarter results that got investors interested in S&N. They saw the US group deliver a 78 per cent rise in profits for the quarter and also upgrade its earnings forecasts for 2005.

Smith & Nephew received a welcome boost yesterday from Zimmer, its US rival, sending shares in the orthopaedics group near to the top of the FTSE 100 risers list, up 8p to 532.5p. It was Zimmer's first-quarter results that got investors interested in S&N. They saw the US group deliver a 78 per cent rise in profits for the quarter and also upgrade its earnings forecasts for 2005.

Zimmer is number one in the orthopaedics industry and its results highlighted the buoyant market conditions that players in this arena are enjoying. Numis Securities is convinced this bodes well for S&N. "The figures should give some comfort on the macro picture at S&N," the broker said. It believes S&N will have little trouble achieving mid-teens earnings growth this year, especially as it is expected to launch five orthopaedic products in the near future.

Elsewhere in the healthcare sector, Shire Pharmaceuticals rallied 19.5p to 561p after Morgan Stanley made positive comments about the company's planned £1bn purchase of Transkaryotic in the US. AstraZeneca added 40p to 2,295p as Deutsche Bank upped its price target on the stock to 2,450p before the pharma giant's first-quarter results tomorrow. The German broker expects positive updates on four key drugs at AZ over the next three to six months and argued that the stock's 7 per cent discount to rivals is excessive.

Alizyme dropped a further 4.5p to 91p. Brokers were keen to stress that under the terms of the biotech's £32m fund raising it is very unlikely that Nomura Securities will be left holding a substantial chunk of the issue even if the company's stock price continues to trade below the 100p placing price.

This is because Nomura had arranged buyers for the fund raising - said to be some 20 institutional investors - before the company had announced to the market that it wanted extra cash. In fact, the only way that Nomura will get left holding Alizyme shares is if one of these institutional investors goes bust between now and the settlement date. This is highly unlikely.

Scottish & Newcastle lost 11.25p to 469.5p while SABMiller retreated 8p to 805p after its Belgian rival InBev posted weaker-than-expected first quarter figures. To blame were weak market conditions in Western Europe.

Meanwhile, London-listed semiconductor stocks were undermined by disappointing results from European sector giant Infineon. The German group's second-quarter numbers missed forecasts and it warned that a significant rise in semiconductor demand in unlikely for the time being. Hence, Wolfson Microelectronics fell 7.5p to 139.5p, Bede gave up 0.5p to 42p and ARM Holdings ticked 0.25p lower to 100.5p.

Kingfisher retreated 2p to 272p in response to news that Deutsche Bank had cut its earnings forecasts and downgraded its rating on the DIY retailer to "hold" from "buy". The broker said: "Kingfisher has already told the market that the first quarter started badly. But we believe the last six weeks have been equally bad due to the weak UK retail sales environment, poor April weather, and continued aggressive pricing by MFI." Deutsche now fears B&Q's like-for-like sales will be down 4 per cent rather than the 2 per cent and that sales at Castorama in France will be down 3 per cent rather than being flat.

Dairy Crest dropped 22.5p to 433p on rumours the company may be close to losing its contract to supply milk to Morrisons. The supermarket group is one of its biggest customers and such a development would be a major setback for Dairy Crest.

According to the talk, Morrisons is looking to reduce the number of its suppliers, which include Robert Wiseman and Arla Foods. A spokesperson for the company refused to comment on the speculation.

Nervousness ahead of Egg's results today left shares in the online bank 6p weaker at 96p. At the end of last week, Credit Suisse First Boston was heard warning its clients the numbers are very unlikely to impress and may well trigger downgrades to consensus forecasts.

Lower down the pecking order, Durlacher rose 1p to 112.5p after Simon Hirst, the chief executive of the stock brokerage, bought 25,000 shares at 112.5p, doubling his shareholding. Julian Hirst, a fellow director, also picked up 25,000 shares at the same price.

ID Data dropped 0.25p to 1.62p on whispers the company is putting the finishing touches on a major fund raising. The IT services group is said to need the cash for working capital purposes. DA gained 4p to 71p after unveiling a £3.5m fund raising. Brokers reckon DA will soon be in a position to announce a sizeable contract win.