Market Report: Wellstream goes with the flow of positive rumours
Saturday 28 August 2010
A spot of bid talk and some broker support ensured a firm ending for Wellstream, the oil services group which booked strong gains last night.
The stock rose by more than 5 per cent or 28p to 533.5p as speculators revisited theories of takeover interest. Volumes remained thin, however, prompting scepticism among traders, who're used to regular bouts of speculative chatter around Wellstream. A push from UBS was seen as more credible reason for the move up, with the broker moving the stock to "neutral" from "sell" following recent run of weakness in the price.
Overall, it was a volatile day on the markets. Both the FTSE 100 and the FTSE 250 strengthened in early trading, drawing stream from reassuring news on growth in the UK and the US. The UK's second-quarter growth figure was revised upwards, moving from 1.2 per cent from an initial estimate of 1.1 per cent, while the US GDP was downgraded by less than feared, sliding to 1.6 per cent from 2.4 per cent for the three months to June.
But gains were erased following the release of a speech by the chairman of the US Federal Reserve. Ben Bernanke, speaking at the annual gathering of the world's central bankers in the American state of Wyoming, said the recovery of output and employment in the US seemed to have slowed unexpectedly in recent months, hitting sentiment on both sides of the Atlantic.
The mood changed yet again after the markets digested the speech, with traders drawing solace from comments that the US central bank stood ready to take further steps to stimulate the economy. Spurred on by the promise of further support, the FTSE 100 switched course and ended nearly 1 per cent or 45.72 points higher at 5,201.56, while the FTSE 250 closed at 9,779.9, up 101.96 points.
The weakest of the blue chips was Tullow Oil, which slid by nearly 4 per cent or 48p to 1,211p after the Ugandan energy minister Hillary Onek was quoted as suggesting that the oil prospector may have lost one of its production licenses. Earlier in the week, Tullow had said that the Ugandan government would not extend the license until the resolution of tax dispute between the authorities and former Tullow partner Heritage Oil, which was 6.4p better off at 311p.
While investors were clearly unsettled, Royal Bank of Scotland analyst Phil Corbett struck a more reassuring note. "We wouldn't read too much into this – Onek has had his knuckles rapped recently by the President by making unauthorised statements on the country's upstream sector," he said, expressing confidence that license extension should be forthcoming once the tax dispute is resolved.
Like the wider market, the miners bounced off lows in the final hours of business. Mr Bernanke's assurances boosted the commodity markets, supporting the likes of Lonmin, which went from a session low of 1,487p to 1,528p, up 19p, by the close. Kazakhmys, which fell by nearly 3 per cent at one point, was also higher at the end of the day, closing at 1,138p, up 9p, despite Deutsche Bank scaling back its target price for the stock to 1,439p.
Also on the upside, the temporary power provider Aggreko rose by 42p to 1,437p thanks to Morgan Stanley, whose analysts upped the stock to "overweight". The broker said that while the recent interim results were strong, with the outlook improving, the shares had fallen back to the degree that Aggreko's premium to the market had halved, opening up an attractive entry point for investors.
The broker also raised the prospect of increasing shareholder returns, saying: "Aggreko raised its interim dividend by 50 per cent and this may be the first step towards higher cash returns. We believe it could return £400m (£150p per share) and only be [at a multiple of 1 times] net debt to earnings before interest, tax, depreciation and amortisation."
Further afield, the chip designer CSR was 3.5p worse off at 285.5p after RBS reduced its earnings estimates and revised its target for the stock to 315p from 390p, flagging the possibility of the company's third-quarter revenues coming in at the bottom end of guidance. "We believe the company is suffering from growing caution among US/European/Chinese customers, conservatism at key original equipment manufacturers in managing the supply chain and limited exposure to key growth markets such as smartphones and tablets," the broker said, sticking with its "hold" stance.
Jupiter fund Management edged up by 1.25p to 202.25p after RBS initiated coverage with a "buy" view, telling clients that the firm was well-placed to capitalise on higher than expected retail flows and, as a leading player in the UK market, increasing interest in well-established fund managers. "Jupiter should be a key beneficiary of the strong retail market, with 90 per cent of its funds under management sourced from UK clients," the broker said, setting a 265p target price on the stock and adding: "As a top-five player in the UK market, Jupiter should also benefit form a 'flight to quality', which has seen the top 10 asset managers increase their market share by 4.7 percentage points to 34.9 per cent over the last two years."
FTSE 100 Risers
Cable & Wireless Worldwide 66.15p (up 3.55p, 5.7 per cent)
Claims pole position on the FTSE 100; telecoms stocks attract interest.
Home Retail Group 219.3p (up 3.8p, 1.8 per cent)
Continues to draw support from the recent, positive CBI distributive trades survey.
Diageo 1,062p (up 12p, 1.1 per cent)
Recovers as bargain hunters move in to capitalise on Thursday's run of weakness.
FTSE 100 Fallers
Royal Bank of Scotland 43.5p (down 0.35p, 0.8 per cent)
Fails to attract interest as its peers in the wider banking sector firm up.
Rolls-Royce 555.5p (down 3.5p, 0.6 per cent)
Trades lower after pushing back the delivery date of a test engine for Boeing's 787 Dreamliner.
Vedanta Resources 1,851p (down 9p, 0.5 per cent)
Pares losses, but fails to close in the black despite late strength elsewhere in the sector.
FTSE 250 Risers
Davis Service 373p (up 7.2p, 2 per cent)
Gains ground after issuing half-yearly results; eyes more bolt-on deals.
Debenhams 58.75p (up 1.65p, 2.9 per cent)
Recent CBI distributive trades survey continues to support sentiment.
IMI 674.5p (up 17p, 2.6 per cent)
Panmure Gordon revises its target price to 900p, compared with 890p previously.
FTSE 250 Fallers
Cookson 419.7p (down 5.2p, 1.2 per cent)
Retreats amid profit-taking after showing strength during Thursday's session.
Hikma Pharmaceuticals 770p (down 7p, 0.9 per cent)
Pressured by post-results profit-taking following recent run of gains.
Domino's Pizza UK & Ireland 408.2p (down 5.3p, 1.3 per cent)
Retreats as market rally drives interest in riskier investments.
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