Market Report: Credit Suisse downgrade gives Shire the shivers

Shire, the pharmaceuticals group which has made steady gains, thanks to bid speculation, slumped to first place on the FTSE 100 loser board after attracting some bad broker sentiment yesterday.

Credit Suisse downgraded the stock to "underperform" from "neutral" and cut its target price to 823p from 930p. It said: "Shire's [attention deficit hyperactivity disorder] franchise will be the key driver of share price performance during the next one to two years [in the absence of] any significant merger, acquisition or licensing activity. We believe investors may be too sanguine about the potential impact to margins ... following the loss of super-profitable Adderall XR revenues [to generics].

"Given the slow conversion rate of Adderall XR patients to Vyvanse, we expect a large overhang of lost profits from the product which must be absorbed during the 2009-2011 timeframe as generics are launched."

Spooked by the threat of lost profits, investors soon abandoned any lingering hopes of a bid and the stock closed down 37p at 903p.

Break-up rumours continued to swirl around Carphone Warehouse. The company has been at the centre of speculation for the past week pegging a sale of its broadband business to Vodafone and of the retail arm to Best Buy. Last night's chatter suggested a deal was still on the cards, but bore no clue about its timing. The lack of detail, however, did not detract investors from some speculative buying, which took the stock up 5.5p to 262.5p.

Overall, the FTSE 100 lost 1 point, or 0.02 per cent, to 6,090.4. While miners and oil companies gave strength to the London benchmark throughout the day, early weakness on Wall Street dragged the index into the red. The FTSE 250, however, rose 98.5, or nearly 1 per cent, to 10,117.5.

Cairn Energy drew mileage out of the rising price of oil, gaining 93p to 2,999p, claiming fourth place on the FTSE 100 leader board.

Among the miners, Kazakhmys did the best, adding 61p to 1,725p. Antofagasta was up 20p to 802p while Xstrata, whose target price was raised to 5,000p from 4,000p at Credit Suisse, gained 89p to 4,094p.

Supermarkets suffered as investors digested weekend news reports of raids by the Office of Fair Trading, Britain's consumer affairs watchdog. "The aggressive intent from the OFT over potential price-collusion is a worrying development for the food retailers ..." said Nick Bubb, an analyst at Pali International. "...the OFT's actions are an unhealthy reminder of the power of regulators at a time when trading is just starting to slow down."

Tesco fell 6.5p to 420p, J Sainsbury lost 8.75p to 384p, and Morrisons shed 8.25p to 289.75p.

On the FTSE 100, Cadbury Schweppes gained 15.5p to 579p after the prospect of a multibillion-dollar deal in the confectionery sector stoked hopes of a move toward consolidation in the industry.

The Mars-Wrigley merger turned the spotlight on the company, which will be reborn as a confectionery-focused business on 2 May. No predators were named, but the talk focused on the recently approved split of the business between Cadbury Plc, which will take the worldwide confectionery business, and Dr Pepper Snapple Group Inc, which will comprise the American beverages business.

Elsewhere, the strength in commodities helped Tullow Oil add 7.5p to 764.5p, despite the resignation of the CFO Tom Hickey, which ABN Amro said "will be seen as a loss". The broker added: "We believe there will be internal candidates for the job, although up front it is unlikely that they will be seen to have the same credibility as the outgoing CFO."

The business software specialist Sage lost 3.75p to 201.25p, after Morgan Stanley revised its rating on the stock to "under-weight" from "over-weight", citing "the sharp deterioration" in the UK macro environment. It said: "We see UK weakness on top of a relatively weak performance in the US as a poor backdrop for the shares in the near term."

On the FTSE 250, M&A talk surrounded Hunting, the oil services company, which rose 28p to 897.5p. ABN Amro, which maintains a "buy" rating, said: "We believe in the past Hunting may have received several approaches for individual pieces of Hunting but has not received an approach for the group as a whole.

"This is because there is very little synergy between its two core divisions: a Canadian midstream business and a global oil services unit supplying tools and accessories used in [the] well-completion and well-construction stages of oil and gas objects."

On AIM, the social housing repairs and maintenance provider Mears rose 3.5p to 311p after Panmure Gordon initiated coverage on the stock with a "buy" rating. "We believe there are compelling market consolidation opportunities that should deliver defensive growth and long-term value to shareholders," the broker said, setting a 340p target price.