Market Report: BG stands firm as bargain hunters pile in

The FTSE 100 fell back last night, but BG firmed up as traders bought in on the grounds that recent concerns had been exaggerated.

Citigroup said the stock had "stagnated" amid worries about the sustainability of LNG earnings and fatigue over the news from Brazil. The initial excitement over discoveries in the pre-salt Santos basin had fizzled out as new data, while confirming the resource potential and hinting at improving project economics, failed to drive upgrades. The delayed and reduced 2009 production growth target also appears to have given succour to the bears. The issue should close with the fourth-quarter results, the broker said, thereby removing the overhang.

"Over the next 12 months we expect to see concerns over the sustainability of LNG profitability ease; confidence build in the long-term production growth aspirations; and progress toward first oil/gas in Brazil and Australia," Citi said, reaffirming its "buy" recommendation.

"In addition, progress with reported efforts to dispose of Power Generation assets and the early 2010 exploration drilling of the Mandarin gas prospect offshore Norway could provide near-term catalysts," the broker added. The news helped BG, up 6.5p at 1091.5p, stand firm in the face of losses for the wider sector. Royal Dutch Shell, for instance, was 13p weaker at 1820p, while BP lost 2p to 579p.

Overall, the FTSE 100 was on the back foot, declining by 29.57 points to 5285.77, while the mid-cap FTSE 250 index fell by 10.9 points to 9026.87. Parts of the banking sector were under pressure, amid concern about Greek banks. News from Austria, where the country's sixth largest bank was nationalised, also bore down on sentiment, sparking selling in the likes of HSBC, down 2.5 per cent or 18.1p at 701.8p, and Barclays, down 2.4 per cent or 7.1p at 292.5p. The former was also hit by concerns about HSBC Bank Middle East, which was among the four UAE banks that Moody's, the ratings agency, placed on review for a possible downgrade.

Standard Chartered was also weak, easing by 13p to 1562p, but Lloyds rose by 0.19p to 55.35p as the impact of technical factors related to the group's rights issue faded. The Royal Bank of Scotland was the strongest of the lot, rising by more than 2 per cent or 0.64p to 31.63p after its shareholders overwhelmingly backed the group's decision to sign up to the Government's Asset Protection Scheme.

In the broader financials space, bid talk was evident around Legal & General, which gained 2p to 79.2p amid rumours that it may soon be subject to an offer of around 125p per share. Resolution was once against mentioned as a possible bidder. Elsewhere, International Power edged up by 1.5p to 301.5p after renewed speculation regarding interest from France's GDP Suez. Speculators continued to peg their hopes on an offer materialising before the year was out, although traders remained doubtful, saying that any deal was more likely in the New Year.

Water companies gained ground after Northumbrian Water, up almost 3 per cent or 7.8p at 278p, said it would be able to continue raising dividends after Ofwat, the market regulator, called for smaller-than-anticipated reductions to water bills over the next five years. The statement lifted sentiment across the sector, with Pennon rising by 14p to 523p and Severn Trent climbing to 1073p, up 26p.

Also on the upside, Compass, the catering group, was supported by Deutsche Bank, which upped its stance on the stock to "buy" from "hold". The broker said Compass had performed better than Sodexo, its French peer, and had a more certain medium-term outlook. The company was also the subject of some comment from HSBC. "There is no denying that Compass has set up a drastic, extremely effective cost-cutting programme enabling it to report the best margins [across the sector], but it has also pared back its sales force and fallen behind in securing future growth," HSBC said, initiating the stock with a "neutral" rating.

Further afield, the housing sector was hit by another wave of selling amid a rush to secure profits on the back of recent updates. As a result, Persimmon fell to 416p, down 2.4 per cent or 10p, while Barratt Developments lost 0.7p to 109.4p.

In the pubs sector, Enterprise Inns was 1.6p behind at 100.8p after Execution began covering the stock with a "sell" stance. "Enterprise Inns is the most exposed stock to the beer tie debate," Execution said. "Although we do not expect wholesale changes to the operation of the industry (even if the competition commission does get involved), we do expect negotiations between landlord and tenant to become slightly less in favour of the [pub company]."

Execution was more positive on Marston's, which was 1.7p ahead at 95.7p. "Its food-led estate is well suited to the forty- to fifty-somethings that the company is targeting," the broker said, initiating coverage with a "buy" stance. "We expect the market to continue to be difficult in 2010, but Marston's consumer demographic should be more resilient than the national average."

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