FTSE 100 flattens amid earnings tug of war between Vodafone and GlaxoSmithKline

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The FTSE 100 largely sat out a positive session across European bourses on Wednesday, amid mixed earnings news for two big blue chips.

The main U.K. index UKX, -0.06% was last down 0.1% to 6,509.63, with the pound GBPUSD, -0.14% also unchanged, trading hands at $1.3658 against the dollar. The telecommunications and drug sectors were headed in opposite directions.

Shares of heavily weighted Vodafone VOD, +6.01% VOD, +6.06% climbed 5%, after the telecoms group said it returned to organic service revenue growth in the third quarter of fiscal 2021, and reiterated full-year guidance.

Vodafone’s service revenue growth is now positive, with a gain of 0.4% year-on-year versus a drop of 0.4% in the second quarter and ahead of Barclays’ own estimates for a 0.5% drop, said a team led by Maurice Patrick.

“The key source of the beat is in Germany, where growth was +1%, vs our -0.4% estimates,” said Patrick and the team in a note. “We believe these results should be taken positively, with no markets getting visibly worse (Italy clearly remains challenging), and Germany growth picking up.”

Attempts by Vodafone shares to bolster the U.K. index were thwarted by another heavyweight, drug company GlaxoSmithKline GSK, -5.66% GSK, -5.23%, whose shares dropped over 4%. The group reported a 48% fall in fourth-quarter net profit, partially due to lower disposal profits and increased restructuring costs.

Glaxo said it expects 2021 adjusted earnings per share to fall in the mid to high-single digit percentage bracket at constant exchange rates.

Read: AstraZeneca vaccine may reduce spread by 67% — and protection remains over 3-month dosage gap

“These results are a bit of a mess — with a dozen moving parts and disappointing underlying numbers. The acquisition of Pfizer 0Q1N, -2.65% is boosting headline revenues and profits, but strip that effect out and sales are going backwards,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown, in a note to clients.

Hyett also noted a COVID-19 pandemic hit on demand for drugs such as antibiotics, which are usually more reliable, though he said “robustly positive” free cash flow was a plus.

“GSK is a company in transition — and by 2022 will be starting life as two separate companies. While we haven’t always supported breaking the business up, we now think the move can’t come soon enough. GSK in its current iteration seems to be struggling to set out a clear vision of what it offers investors. Hopefully its successor companies are a little more streamlined,” he said.

GlaxoSmithKline also announced a €150 million ($180.7 million) partnership with German biotech CureVac CVAC, +3.44% to develop new COVID-19 vaccines. CureVac shares rose in U.S. trading.

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