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FTSE rebounds ahead of Yellen testimony but Hikma and Arm slide

Discussion in 'Market News' started by Lily, Feb 10, 2016.

  1. Lily

    Lily Forum Member

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    Markets calmer after recent upheaval but investors await Fed chair’s comments

    Markets are staging an early rally after this week’s hefty falls amid panicky trading. But the mood is still cautious ahead of chair Janet Yellen testifying to Congress later, and there are some notable losers.

    Hikma has dropped 234p or nearly 12% to £17.61 after the pharmaceutical group revised the terms of its offer for US generic drug group Roxane. It said it would pay $535m less than originally anticipated $2.65bn since the group’s 2015 revenue would be lower than expected. It said Roxane’s revenues this year would also be affected. Analysts at Jefferies said:

    The company stated they believe 2016 revenue will be negatively impacted and has reduced the revenue range for 2017 to $700-750m vs. $725-775m previously and JEFe $750m.

    Since the publication of the Prospectus on January 22nd, Hikma received new information from BI with regard to the financial performance of Roxane in 2015, leading to a reassessment of the outlook for 2016 and 2017. Roxane’s unaudited revenue appears to have been lower than Hikma expected at the time of the prospectus’ publication.

    We still believe the acquisition makes strong strategic sense for Hikma, and plan to adjust our forecasts for these changes in due course.

    Dollar revenue was 2% ahead of our forecast. However, there was a $9m royalty catch-up which boosted numbers. Excluding this catch up revenue was in-line. Opex was 5% ahead of our forecast. Including the royalty catch-up EBIT was in-line, but excluding it EBIT was 4% below our forecasts. Dividend per share has been increased by 25% but nothing further on cash returns which may disappoint some. Backlog was up quarter on quarter. Arm’s outlook statement is cautious.

    Major European markets are trying to rally once again, but with previous rebounds having lacked conviction, falling sharply after early gains, sentiment remains fragile. Any early movement in markets is, however, just a precursor to this afternoon’s main event, billed as possibly the most important debate of the year so far, as Janet Yellen makes her first official public statement since raising rates in December.

    At the House Financial Services Committee today, Janet Yellen can expect a tough examination from lawmakers after the financial carnage that has ensued since the Fed hiked interest rates. Will she insist that the Fed is simply data-dependent, or might there be an acknowledgment that the world simply wasn’t ready for higher US interest rates? With both the Bank of Japan and European Central Bank still in aggressive easing mode, the Fed appears more isolated than ever in its efforts to normalise US monetary conditions.

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