Market Report: Analysts warn of more risk as Tullow strikes water

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The Independent Online

Disappointing results from one of Tullow Oil's most highly anticipated wells off the coast of Ghana sent its shares spiralling lower yesterday. Yet there could be further pain in the pipeline, as analysts pointed out that projects in the region were not seen as risky as the current offshore drilling in Sierra Leone and Mauritania.

Tullow admitted yesterday that, rather than turning up black gold in its Onyina-1 exploration well, it had found, erm, water. Richard Rose, of Oriel Securities, called the announcement a "blow to sentiment". He said the rating looked stretched as he lowered his recommendation on the company's shares from "hold" to "reduce". He added: "The wider exploration programme is entering a crucial phase for the company." The shares closed 26p down at 1227p.

The worst blue-chip performer by a country mile was Tui Travel, whose shares nosedived after it revealed a mix-up over its numbers. The package holiday and airline operator discovered that it was owed £117m by customers which would now have to be written off. As a result, it restated its results for the year to the end of September 2009 and the chief financial officer quit. Panmure Gordon moved the stock from "hold" to "sell" in response. The shares gave up more than 10 per cent, closing down 25.4p at 205p.

Despite an initial dip, the FTSE 100 rallied as investors piled back into shares. Strength from across the Atlantic helped drive the top tier up by 28 points to 5,757.

Investors found it was good to talk about BT Group's shares after its pension trustees won a High Court victory. The word "pension" can have a strong effect on BT's share price, and yesterday's talk saw it rise 5 per cent. The court said the company's Crown guarantee scheme (how much the Government would have to pay pension-holders should BT go bust) which was put in place after the company was privatised, would cover all members no matter when they joined the company. The shares closed up 6.1p at 156.3p after JPMorgan Cazenove said the ruling supported its view that the pensions issue facing BT was "a reducing concern".

Big mining gave the FTSE 100 some ballast. Anglo American led the way, rising by 72.5p to 2,943.5p as it released third-quarter production figures. The company posted strong results in platinum, diamonds and lead, although copper output was down 9 per cent. Analysts at Bernstein Research put the stock on an "outperform" rating with a target price of 3160p.

The market had been toasting the drinks giant Diageo in the morning, although it suffered somewhat of an afternoon hangover. A positive read-across from its French rival Pernod Ricard, which posted a 10 per cent rise in first0quarter sales, saw Diageo's shares rise by 27p to 1187p. Rumours filtered into the market during the morning that Diageo was running the slide rule over a bid for the drinks business of Louis Vuitton Moët Hennessy, although that was denied.

Consumer goods stocks also benefited from a positive read-across from our Gallic neighbours as Danone beat third-quarter expectations. The French yoghurt-maker's results, combined with a bullish note from Panmure Gordon, sent Unilever up 46p to 1846p. Panmure's analyst Graham Jones pointed out that the shares had fallen 5 per cent in the past three months, while the FTSE All Share Index rose 11 per cent. He put Unliever's stock on a "buy" rating with a target of 1,800p, saying it was "is in its best state ever".

The Office for National Statistics shocked the market with worse than expected retail data yesterday. Sales fell 0.2 per cent last month, despite economists having predicted a 4 per cent rise. Nevertheless, Debenhams managed to avoid a sell-off after it posted solid full-year results. It pleased investors with plans to reinstate a dividend next year. Full-year profits rose 21 per cent, while net debt fell £74.5m since last year to £516.8m. The company also predicted further growth next year thanks to rising sales of its own brands. Eithne O'Leary, an analyst at Oriel, put a "buy" recommendation on the stock with a target price of 115p. The shares closed almost 7 per cent, or 5p, higher at 76.5p.

The soaraway leader on the middle tier was the oil group Afren, which further established itself in Nigeria after buying a stake in an oilfield from Shell, Total and ENI for $187.5m. The group's boss, Osman Shahenshah, said he expected a similar deal next year and the shares closed up 16.5p at 132.4p.

The outsourcing group Xchanging suffered. Goldman Sachs analysts said they supported the stock and gave it a "buy" rating, but reduced the target price from 267p to 170.7p following worse than expected first-half results earlier in the week. The shares fell 4p to 130p in response.

Provident Financial, which issues its third-quarter numbers today, also tumbled in the wake of the Coalition's spending cuts. Collins Stewart, which cut its target price from 800p to 635p with a "sell" rating, said the austerity measures would have a "major impact" on Provident's clients and the subprime lender's share fell 26.5p to 773p.

In the wider market, Best of the Best, which runs car competitions in airport terminals, rose after BAA cancelled its stake in the group and waived its dividend. The shares rose 2p to 20.5p.