Drugs sector finds the formula

MARKETS: CITY TALK

This week should bring further evidence from pharmaceuticals giant SmithKline Beecham (894p) of its growing stature as a major league player, when the company unveils its full-year results on Tuesday.

Shareholders will hear how products as diverse as Augmentin, the company's best-selling antibiotic, and Paxol, one of a new generation of anti- depressants, have been faring. Augmentin performed especia-lly well in January, according to industry figures, with sales up 29 per cent. The fillip came from a new formulation allowing the drug to be prescribed on a twice-daily regime, rather than the previously recommended three times a day, reviving a once-flagging product. Paxol sales also look to be growing at around 30 per cent. However, Famvir, the antiviral shingles to genital herpes treatment, has been losing ground to Glaxo Wellcome.

SKB shares, having risen strongly this week from 852p, could receive another boost on Tuesday; analysts are expecting full-year profits of around pounds 1.57bn.

Other pharmaceuticals were also strong, a consequence of old takeover rumours and strong performances by their counterparts in the United States. Smith & Nephew is the latest bid target, up 21p to 196p in the course of the week, spurred on by rumours of an offer in the pipeline from Eli Lilly or Johnson & Johnson of the US.

Indeed, it was Wall Street which gave the lead to most shares last week, with many stocks hitting record highs. The recent uplift has also boosted companies which have been out of favour. One such was Dalgety, the pet foods to agribusiness concern, headed by Richard Clothier. It has risen from 320p to 349p since mid-January. But there is little to suggest that Mr Clothier can overcome sluggish growth and weak demand in some of its key markets.

Storehouse is also in favour with some brokers, who believe the company is on the mend. But there are still detractors aplenty, and tentative signs of recovery in the price may only provoke further selling by the bears.

Other retail stocks were on fire, helped by Chancellor Kenneth Clarke's decision not to raise interest rates at his latest meeting with Bank of England Governor Eddie George. Although the news is good for the sector, it is short-termist to believe that another rise is now delayed indefinitely: at the very least, it looks a racing certainty that if Labour wins the election - only two-and-a-half months away - Gordon Brown's first move as Chancellor will be a pre-emptive interest rate strike.

Shares in WPP, the advertising services group, only have to remain where they are over the next few weeks for boss Martin Sorrell to qualify for the second tranche of a bonus package of shares worth pounds 1.17m. The deal could net him a remarkable pounds 28m over the next five years if certain performance targets are met. If shares stay above the 230p trigger - a level they broke through in late December - for 60 consecutive working days, Mr Sorrell will be on to the next stage of his once seemingly outlandish package. Full-year results are announced on Wednesday: analysts expect pounds 150m pre-tax, rising to pounds 180m in 1997. The shares closed at 252.5p on Friday, a 7.5p gain on the day.

Down among the minnows, the week closed with a small bang in the sheltered waters of investment trusts when Scottish Value Management bid pounds 47m for Pilot Investment Trust, up 5p to 122p. Pilot, set up in 1993 to invest in smaller companies, has had a woeful time and there are doubtless shareholders who will be tempted by the offer.

But PIT has urged shareholders to reject the offer. SVM, headed by Colin McLean, is bidding through its Scottish Value Trust, set up to exploit undervalued investment trusts. Mr McLean has built a reputation as a canny investor, quick to spot such opportunities.

PIT will be hard pushed to fight off the bid - last year it was the worst- performing small companies investment trust. However, Rutherford Asset Management, which manages the fund, says it has already taken strong remedial action, bringing in Peter Webb as investment director last summer from Thornton's, where he built up an enviable track record in smaller company funds. The fight has only just begun.

RICHARD PHILLIPS