Hopes of a Greek deal support market while commodity companies lifted by metal price risesLeading shares have moved higher, with commodity companies boosted by a rise in base metal prices and GlaxoSmithKline lifted by a broker upgrade.With copper hitting a three week high and Brent crude adding 1.55% to $60.20 a barrel - despite many analysts advising cashing in on the recent revival - the FTSE 100 has risen 46.31 points to 6872.42.GSK has been a difficult investment case for years, with declining earnings since 2010, as sales growth has been anaemic and the operating margin trended steadily down despite several rounds of restructuring. In 2014 GSK’s outlook dramatically deteriorated further as changes in the US pricing environment revealed the extent to which GSK’s profitability depended on US price increases; this raised concerns about sustainability of the dividend given GSK’s fast-deteriorating cash generation. However, after a dramatic re-basing of GSK’s earnings expectations (2015-17 consensus estimates were cut by 30-32% during 2014), we believe earnings have reached an inflection point.Fears over declining margins due to Advair discounting along with an earnings rebase at the Capital Markets day (late second quarter) are likely to weigh on sentiment in the near-term but we remain focused on the medium to long-term outlook where two-thirds of incremental earnings before interest and tax growth is set to be driven by GSK’s non-pharma franchises consumer/vaccines/ViiV. We reiterate our overweight rating, with a revised price target of 1690p [from 1700p].Reports of the death of the eurozone economy have been greatly exaggerated. GDP figures from across the currency union were much better than expected. The engine appears to be running again, and ECB quantitative easing should supercharge European markets yet further. A three-week high for the FTSE 100 finds the index on the cusp of 6900 once again, as a general resurgence in mining shares comes despite hefty writedowns from Anglo American this morning. As a highly leveraged play on a global upturn, the mining sector is not for the faint-hearted, but monetary stimulus from China could reignite enthusiasm for commodities and lift them from their current doldrums. Continue reading...
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