Market Report: Investec says time to check out of RBS
Investec banking expert Ian Gordon has made sure he is crossed off George Osborne's Christmas list. In just two weeks, he has gone cold on majority state-owned bank Royal Bank of Scotland. He said it is time to sell RBS, and thinks punters would be better off switching to Barclays shares.
Earlier this month he slashed his recommendation to hold from buy, but now has said the "risk-reward is disproportionately skewed to the downside". He has issued a target share price of 245p and admitted "we have never regarded RBS as uninvestable" but said that now RBS trades at a small premium to the "profitable/defensive Barclays", he thinks this is "inappropriate", and it is time to ditch the stock. RBS lost another 4.6p and ended the day at 274.4p.
The FTSE 100 index slipped back below the 5900 mark after its strong run on Friday when the news of QE3 in the US buoyed traders. The dip was a pause for breath, on no new news from Europe and ahead of today's UK inflation figures and it finished down 22.03 points to 5893.52.
It was a busy day in the Falkland Islands. AIM-listed Falkland Oil and Gas has found gas but no oil at its Loligo drilling site. Its shares have already taken a battering. Last Monday, they sank 30 per cent – from 90p to a seven-month low of 56p – as it confirmed that drilling had fallen behind schedule.
Yesterday, they hissed up 3.75p to 74p as the explorer said it would plug and abandon the well and move on to drill in the Scotia prospect. The discovery of gas is disappointing as it is harder to transport, given the sensitive political situation with Argentina and its president Cristina Fernandez, and with no terminal for liquefied natural gas (LNG) anywhere nearby. But analysts at Jefferies gave the stock a buy rating with a reduced share price target of 115p, down from 195p.
Despite the setback, chief executive Tim Bushell said: "With our partners Noble Energy and Edison, we have the technical resources and funding in place to carry out substantial 3D surveys, followed by further drilling in 2014."
News of the gas discovery appeared to boost other Falkland explorers.
Rockhopper Exploration jumped 11.5p to 191p and Borders and Southern Petroleum edged up 2.5p to 25.25p.
Fellow Falklands explorer Desire Petroleum reported reduced losses following the completion of drilling and seismic activities. The group has an estimated 4 per cent share of Rockhopper's successful Sea Lion discovery. Its first-half operating loss shrank to $1.51m from $39.39m a year earlier. Its shares lost 0.25p to 25p.
Africa-focused explorer Bowleven updated the market with a farm-in agreement to acquire a 50 per cent equity interest in an onshore exploration block in north-west Kenya. Its shares edged down 0.25p to 78.25p.
Royal Dutch Shell dropped 7.5p to 2319.5p after admitting a containment dome on the Arctic Challenger barge had been damaged while conducting tests off the coast of Alaska. Shell said the damage meant it could not drill in the area this year. BP, up 1.3p to 451.5p, has already shelved plans for drilling in the Arctic earlier this year.
Vague bid speculation made a return to the world's biggest hedge fund, Man Group. US hedge funds could be circling. Bid speculation first emerged in 2010 when the shares were above 300p. Bank of New York Mellon was the admirer then, and some traders said it could be taking another look. Finance director Jonathan Sorrell last week bought 304,878 shares in the company at 82p. The shares jumped 1.1p to 89.6p.
Emerging markets fund manager Ashmore is due to leave the FTSE 100 this month but RBC Capital Markets thinks its underperformance has been overdone and it "trades at a sector discount despite superior margins and returns". It was the biggest riser yesterday, ticking up 10.3p to 338.15p.
On the midcaps, platinum specialist Lonmin warned striking miners at its strife-hit Marikana platinum mine that if it cannot reach a settlement with them, they could face job cuts. Investec analysts started coverage of the company yesterday, detailing the sheer variety of possible outcomes. Due to the "current lack of visibility", it said it could only give a wide range of the valuation of the equity in the company of between zero and 1390p per share.
Investec said it could give no formal recommendation or price target. Lonmin's shares moved up 34.5p to 649p.
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