Market Report: Analysts highlight value in African Barrick Gold

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An increase in the price of the yellow metal and reassuring analyst comments over its recent underperformance left African Barrick Gold (ABG) looking strong on the blue chip index last night.

As the value of gold increased, the miner pushed up 6p to 572.5p, helped by HSBC lending its support. The broker initiated coverage on ABG with an "overweight" recommendation, pointing out that it has been recently trading below 575p, the price it was floated when it was spun off from its parent company Barrick Gold last year.

"Given strong gold price leverage, and a positive outlook for gold prices, we believe ABG is attractively priced," said its analysts.

They picked out the fact that Barrick Gold remains a controlling shareholder as part of the reason it has been trading at a low level recently, saying investors have been put off "because it is feasible that minority shareholders could be poorly treated if there are major decisions to be made".

"For example, the chances of a takeover or simply a radical change in board composition or management at the request of minorities is lessened," they added. Yet despite having low expectations of Barrick Gold selling a large part of its stake any time soon, they still gave ABG a target price of 700p which included the assumption of a "20 per cent discount for lack of control as a minority shareholder".

It may have enjoyed a late rally, but the FTSE 100 failed to move forwards once again as the top tier index suffered its fifth consecutive day in the red, finishing just 3.55 points lower at 5,919.98.

As has been the case for the whole week due to the unrest in Libya, oil was the theme of the day as the commodity's price increased again. Enquest, Tullow Oil and Premier Oil were among the oil groups benefiting as a result, rising 8.9p to 143.8p, 40p to 1,389p and 45p to 2,010p respectively.

The effect of fuel costs hit the airlines once more, as International Consolidated Airlines slipped back 8.2p to 226.2p and EasyJet declined 0.7p to 354.8p despite Morgan Stanley's attempts to spread some optimism around the sector.

"We believe it is premature to 'write off' the sector in light of fuel price rises," said the broker's analysts, who claimed that some companies should be able to actually benefit from the increases.

BP was bumped up 4.5p to 493p following comments made by the boss of its Indian operations over the amount of gas estimated to be in a number of blocks it now owns a share of.

Earlier this week BP agreed a $7.2bn deal for a 30 per cent stake in 23 oil and gas blocks owned by the Indian energy group Reliance Industries. Sashi Mukundan said he believes they hold 15 trillion cubic feet of gas resources, which impressed analysts and also helped Cairn Energy – which is currently disposing of a controlling stake in its Indian unit – climb 9.8p to 423.2p.



In a busy day for updates, most eyes were on Royal Bank of Scotland as it continued the bank reporting season with its final results. Despite turning a profit in the last quarter of 2010, its overall loss for the year was still more than expected and it dropped 1.72p to 45.6p. In better shape was Lloyds Banking Group, 0.28p higher at 65.78p, with the latter set to release its figures today.

Centrica was another of the blue chip groups updating the market, but the fact that its full-year profit rose dramatically came as little surprise and it edged back 1.5p to 333.6p.

A more dramatic move came from Capita, with the outsourcer the best performer on the top-tier index as it advanced 48p to 718p. Jonathan Jackson, head of equities at Killik, noted that the statement was "more positive in tone than recent announcements", and its peer Serco, up 14p to 543.5p, was also looking more cheerful.

At the other end, RSA Insurance was knocked back 0.8p to 0.57p after it said its profit for the year had fallen by nearly 20 per cent. Noting that the hit was already expected after the company warned about the effects of the cold winter last month, Panmure Gordon's Barrie Cornes still downgraded his rating on the group to "hold" from "buy", citing its recent share price rise.

Putting its gains in the past weeks down partly to vague speculation doing the rounds last month that Aviva could make a play for it, he dismissed the idea saying that while "we can see the logic for such a deal we believe that the current share price of RSA... would effectively preclude any offer".

The largest shift among the 350 biggest groups on the London market, however, came from Britvic, as it plummeted 49p to 369p – a retreat of nearly 12 per cent – after saying it expected raw material costs to rise at a higher rate than previously predicted.



Among the small-cap companies, Mouchel closed 16.5p ahead at 152.5p as the outsourcer revealed it is in engaged in "advanced discussions" over a potential takeover bid. There was confusion over which company it is in talks with, however, after Costain – which crept up 6p to 230p – said it was not the one, despite having made a number of bids itself in recent months.

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