The Morning Call - AstraZeneca down 15% after Lung Cancer drug failure

Highlights of the Day

Asian Markets

Asia markets were mostly higher following the Federal Reserve’s decision to leave interest rates unchanged and as a slew of corporate earnings began coming through.

U.S. Markets

U.S. stock-market benchmarks finished modestly higher, with all three gauges recording all-time highs, supported by better-than-expected corporate results, and as the Federal Reserve offered an update to its monetary-policy outlook.

Today's News

The rate-setting US Federal Reserve said that it expects to begin reducing its bond holdings “relatively soon” if the US economy continues stable growth. The Fed’s balance sheet of Treasury loans, government-linked bonds and mortgage-backed securities swelled dramatically since the 2008 financial crisis to USD4.5 trillion, as the central bank injected money into bond markets in hopes of spurring private investment. The central bank left its benchmark interest rate unchanged at a range of 1.00% to 1.25%, after implementing a hike of 0.25 percentage points in June for the third time since December. The Fed’s monetary policy committee noted that the economic data has continued to show moderate expansion and a strengthening labour market since early June. Inflation, measured through both price surveys and consumer spending, remains below the Fed’s 2% goal. “In view of realized and expected labour market conditions and inflation, the committee decided to maintain the target range for the federal funds rate,” the Fed said. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation.”

AstraZeneca’s combination of two injectable immunotherapy drugs, durvalumab and tremelimumab, failed to help patients as hoped in a closely watched advanced lung cancer trial, the British company said. Initial results from the study, known as MYSTIC, found the combination was no more effective at stopping disease progression than chemotherapy in patients expressing a protein called PD-L1 on 25 percent or more of their cancer cells.

Lloyds Banking Group has reported a strong first half performance with improvements in underlying and statutory profit. Underlying profit rose by 8% to £4.5 billion with underlying return on tangible equity of 16.6 . Total income was 4% higher at £9.3 billion and net interest income of £5.9 billion was up 2% with improved margin of 2.82%. Other income was 8% higher at £3.3 billion. The board has declared an interim ordinary dividend of 1.0 pence per share, up 18%, which, it said, was in line with the group’s progressive and sustainable approach to ordinary dividends

Facebook revenues and profits soared in the most recent quarter, as advertising dollars poured into the social media company and users continued to flock to the site. More than two billion people – more than a quarter of the world’s population – log into the site every month, a powerful draw for advertisers. The firm said revenues hit $9.3bn (£7.09bn) over the April to June period, jumping 45% year-on-year. Profits climbed 71% to $3.9bn. “We had a good second quarter and first half of the year,” said chief executive Mark Zuckerberg, who founded Facebook in 2004. Facebook has been adding more advertising as well as more consumers, as it explores how to monetise its other social networking platforms, Instagram and WhatsApp.

Anglo American has resumed dividends after net debt was reduced to $6.2 billion, driven by $2.7 billion free cash flow. The group generated underlying EBITDA of $4.1 billion in the six months to the end of June, a 68% increase on last time. Underlying EBITDA margin increased by an additional five percentage points vs. FY 2016 and the group posted a rofit attributable to equity shareholders of $1.4 billion. Resumed dividend at 48 US cents per share for the first half, equal to 40% of first half underlying earnings – Dividend policy to target pay-out of 40% of underlying earnings Chief executive Mark Cutifani said: “The benefits of our relentless focus on driving efficiency through the operations and on upgrading the quality of our portfolio have resulted in a step-change in operational performance and profitability. “In the first half, we have delivered a further 20% increase in productivity, a 68% increase in underlying EBITDA and $2.7 billion of attributable free cash flow – the outcome of extensive self-help work and tightly controlled capital expenditure, within a stronger price environment.

Sky’s operating profit fell by £97m, or 6%, to £1,467m in the 12 months to 30 June after the company absorbed £629m of Premier League costs and invested in new businesses. The group returned to profit growth in the fourth quarter, with operating profit up 8% to £455m and earnings per share 19% higher. Year-on-year revenues rose by 5% on a constant currency basis to £12.9m. The company said it had particularly strong results in Germany & Austria and Italy, where operating profit increased by £115m. Jeremy Darroch, group chief executive, said the company plans to increase investment in Sky originals by 25%, roll out Sky Q to Italy, Germany and Austria, and launch Sky Q without the need for a satellite dish.

Just Eat has upgraded its full year revenue guidance after a strong first half. Revenues for the six months to the end of June were up 44% to £246.6 million (H1 2016: £171.6 million), up 38% on a constant currency basis. Underlying EBITDA rose by 38% to £73.6 million. Interim chief executive Paul Harrison said: “Just Eat’s marketplace connects millions of consumers to thousands of restaurants. “The success of our business model is based on delivering ever-greater choice and convenience to customers, while bringing more benefits and services to our Restaurant Partners. “We are pleased to see our continued investment in technology and marketing add value to both sides of this marketplace, which is reflected in the strong start we have made to 2017. “Our largest competitor remains the telephone in every market where we operate.

Diageo reports a consistent strong performance for the year ended 30 June with reported net sales of £12.1 billion and operating profit of £3.6bn – up 15% and 25%, respectively. The group said this reflected favourable exchange and accelerated organic growth. Diageo said All regions contributed to broad based organic net sales growth, up 4.3%, and organic volume grew 1.1%. Organic operating profit grew 5.6%, ahead of top line growth, driven by good progress on productivity partially offset by implementation costs and one-off items. Free cash flow continued to be strong at £2.7 billion, increasing by £566 million compared to the prior year, with net cash from operating activities up £584 million to £3.1 billion. Basic eps of 106.0 pence was up 18%. Pre-exceptional eps was 108.5 pence, up 21%, as higher organic operating profit and associate income along with favourable exchange more than offset the impact of disposals and a higher tax rate.

Schroders reported a rise in first-half pre-tax profit as assets under management grew. In the six months to 30 June, pre-tax profit rose to £342.8m from £282.3m in the same period a year ago, with assets under management at an all-time high of £418.2bn, up from £343.8bn. The company posted net inflows of £800m, down from £1bn a year ago but ahead of analysts’ expectations for outflows, and the interim dividend was lifted by 17% to 34p per share. Pre-tax profit in the asset management division increased to £301m from £249.1m, while profit in the wealth management business rose to £36.4m from £28.4m. Chief executive Peter Harrison said: “Underlying progress in all regions was encouraging and we are building out our capabilities in Private Assets. We are confident in our ability to continue identifying, and investing in, areas of future growth.

Foxtons saw first-half profits fall by 63.8% after slowing demand and increased political uncertainty hit its performance. Pre-tax profit dropped to £3.8m in the first six months ended 30 June 30, down from £10.5m a year earlier. Revenue from lettings, a strong area for the firm that could be hit as the government introduces a ban on one-off tenant fees, fell 2% to £32.1m.

Royal Dutch Shell’s profits surged in the second quarter. It said profits on a current cost of supply measure (CCS) – which strips out price fluctuations – jumped by 245% compared with the second quarter of 2016. CCS earnings were $3.6bn as a result of higher contributions from downstream – or the refining side of the business -“driven by improved operational performance and stronger chemicals and refining industry conditions”, the company said.

Ladbrokes Coral Group has reported a strong first half performance and upgraded synergies to £150m – more than double the level initially announced. The group said it was on track to meet its full year forecasts after good first half. Chief executive Jim Mullen said: “Ladbrokes Coral posted a strong performance in H1 with results in line with our expectations and another significant upgrade to synergies, which at £150m will now be well over double the level initially announced. “Digital has performed well, with net revenue growth of 17% particularly pleasing against a backdrop of a significant period of platform integration and a competitive trading environment.

Thomas Cook increased its gross profit by 18.8% to £468m in the three months to 30 June, but its margin fell from 21.3% to 20.6% as a result of strong competition in Spain. The company made a profit from operations of £6m compared with a loss of £25m a year earlier. This was driven by strong demand for holidays across the group combined with an improved performance in its German airline. Peter Fankhauser, chief executive of Thomas Cook, said German airline Condor remains on track to return to profitability for the full year. Group revenue rose by 14% to £2,272m.

Glencore’s own-sourced copper production fell to 642,900 tonnes in the first half of the year – down 9% on last time. The group said this reflected a transition to mining a greater portion of copper/zinc ores at Antamina (noting concurrent higher zinc grades/production), temporary lower copper grades at Antapaccay, the effects of wet weather at Mutanda resulting in reduced ore throughput, and lower production/pit stability issues at Alumbrera as it neared the end of life. Own-sourced zinc production of 570,800 tonnes was up 13%, reflecting the Antamina increase and generally solid performances across the portfolio. Own-sourced nickel production of 51,200 tonnes was down 10%, reflecting scheduled maintenance at Murrin and INO, partly offset by the stabilising and improving performance at Koniambo.

Oil prices were sitting just below 8-week highs, buoyed by hopes that a steeper-than-expected decline in U.S. crude oil inventories will reduce global oversupply

Gold prices rose for a second day, hitting a six-week high, on rising demand as the dollar dropped to a 13-month low after the U.S. Federal Reserve indicated that it would keep to a slow path of monetary tightening.

Companies Reporting this week

Today:	Angle * Diageo * Renishaw * Sky * Torotrak * AstraZeneca * Royal Dutch Shell * Lloyds * Just Eat * Anglo American * Schroders
Friday:	Clipper Logistics * Berendsen * Barclays * BT Group *

Early Market Movements

Market	Index	Change	% Change
UK 100	7445.1	-7.2	-0.1%
UK 250	19,847.6	+84.9	+0.4%
GER 30	12,269.6	-35.5	-0.3%
FRA 40	5,205.3	+15.2	+0.3%
U.S. 30	21,711.01	+97.58	+0.5%
U.S. 500	2477.8	+0.7	+0.0%
OIL (BRENT)	50.89	-0.08	-0.2%
GOLD	1,262.29	+1.76	+0.1%

UK Risers & Fallers (8:15am)

Company	Price	Change	% Change
Indivior	346.7	+29.6	+9.3%
Diageo	2389	+116.5	+5.1%
Rentokil	285.5	+10.7	+3.9%
Astrazeneca	4306.5	-806.5	-15.8%
Aveva Group	1982	-95	-4.6%
SSE	1399	-61	-4.2%

Latest Broker Views

Company	Broker	Recommendation	Price	Target
Sage Group	Goldman Sachs	Conviction Buy	688	825
London Stock Exchange	Barclays	Overweight	3793	4140
Metro Bank	RBC Capital	Sector Perform	3623	4000
Marstons	HSBC	Hold	116.95	115

Forthcoming Economic Data

Time/Date	Previous	Forecast	Outcome
9:00am: European M3 Money Supply y/y	5.0%	5.0%	–
11:00am: U.K. CBI Realised Sales	12	10	–
1:30pm: U.S. Core Durable Goods Orders m/m	0.3%	0.4%	–
1:30pm: U.S. Unemployment Claims	233k	240k	–