Market Report: Tullow Oil tumbles on West Africa setback

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The Independent Online

As predators circle mid-tier oil companies, Tullow Oil was yesterday backed to be the odd one out when the music stops.

Over the past two months, Tullow has outperformed the energy and petroleum sector, which has been bolstered by the rise in oil prices and talk of consolidation. UBS downgraded Tullow to a "sell" rating, saying it was "arguably the least exposed to both of these factors".

The Swiss broker added that disappointing drilling news in Ghana and overvalued Ugandan reserves left the stock looking expensive. Tullow slumped to the second-worst performer on the top tier, down 5.79 per cent to 585.5p.

Lowest on the day was British Energy, after problems with several nuclear reactors. The company released a statement in the morning admitting that the resumption of two reactors would be delayed. It spiralled 8.12 per cent to 532p at the close.

This came on a bad day for the market, with the FTSE 100 smashed 114.5 points in the morning. The drop, sparked by Friday's falls on Wall Street, had traders trying not to think of Black Monday, 20 years ago. While some predicted that the market had further to fall, one trader said: "The market is not a complete bloodbath, it doesn't seem like Armageddon from where I'm sitting." It was led further down in the morning by broker downgrades on three sectors.

The miners suffered as Citigroup lowered five of the blue chips to "hold" after August's share rally. Kazakhmys took the biggest hit, down 5.15 per cent to 1455p, followed by Vedanta Resources, which shed 5.04 per cent at 2054.

Elsewhere, real estate investment trusts were in focus after a sector review by HSBC. The only stock to avoid the sell-off, despite a cut in its rating, was Liberty International, strengthening 1.02 per cent to 1089p.

Separately, the UK financial sector was smashed by Credit Suisse, after what one market maker called "savage downgrades" on some of the banks. It lowered its 2008 earning predictions by about 15 per cent, excluding Northern Rock, saying the UK housing market could drive significant further downgrades. It cut Alliance & Leicester's price target from 953p to 675p and Bradford & Bingley, in the mid caps, to 270p from 390p.

Top of the risers yesterday was Vodafone Group, which posted a 2.69 per cent rise to 179.7 as investors rushed for safety. Another climber was the publishing and information group Pearson, up 1.44 per cent to 776 on a bullish trading update. The group said operating profits for the first nine months were 20 per cent higher than the same period last year.

The food equipment company Enodis topped the mid-cap risers after strong support from Investec. It roared up 11.79 per cent to 211p after the broker slapped a 258p price target on the stock. Last year, Enodis defended itself against three takeover approaches, with the highest approach at 220p per share.

Investec said: "Any potential suitor would have to pay a price higher than was indicated last year to obtain Enodis." It added that the company was better quality than rival Aga Foodservices. Aga fell 3.51 per cent to 411.75p as Merrill Lynch and Citigroup cut their ratings to "neutral", saying the stock was approaching fair value.

The oil group Burren Energy hit the headlines once more after takeover interest from Korea National Oil Corporation. The state-owned South Korean group said it was considering an offer, sending the stock 5p stronger to 1172p. Burren leapt 28 per cent earlier this month, after it turned down a number of approaches. This included a 1050p per share bid from Italy's Eni.

Eaga was another mid-cap riser, strengthening 1p to 183p after an interim management statement. The green support services group was up after it said prospects "remain encouraging" after a positive start to the year.

The London Stock Exchange was among the highest fallers, after WestLB cut its rating to "reduce", and slashed its price target from 1700p to 1520p. The German broker said merger and acquisition speculation was retreating, and added that the sector looked overpriced. The LSE fell 5.23 per cent to 1,607p.

Takeover interest sent several stocks higher on AIM yesterday. The publisher Huveaux said it had received approaches from "a number of private equity houses", causing a 9.82 per cent bounce to 30.75p.

Synexus Clinical Research rose higher after a takeover approach of its own. The clinical trials company released a statement on the back of recent moves in the share price, confirming interest from an unnamed suitor. It closed up 18.35 per cent to 64.5p.

The growth market's worst performer was penny stock Gamingking after it issued a profits warning. The leisure group fell 28.57 per cent to 0.625p as it warned of the effect of the smoking ban on its results.

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