Market update - 4 August
Monday 04 August 2008
The FTSE 100 was down 5.3 points at 5,349.4 at 11:51 am today.
On the leader board, the oil majors tracked the price of crude, which edged up past $125 per barrel, and Royal Dutch Shell was up 29p at 1,809p. Drax, the company behind the coal-fired power station in Yorkshire, also benefited from firmer commodities prices and gained 12p to 721p. The housing materials group Wolseley was the strongest on the benchmark index, up 10.5p at 350.25p, following talk that it may offload Stock Building Supply, its North Carolina-based subsidiary. Its private equity-owned rival HD Supply, Nasdaq-listed Builders First Source and Pro-Build are billed as the most likely buyers.
Imperial Energy, the Commonwealth of Independent States-focused oil & gas explorer and producer, leapt to 1170p, up 96p or 8.94 per cent. The company has confirmed a second takeover approach, widely believed to be from China's Sinopec, the state-backed oil refining and petrochemical group. The news follows an earlier 1,290p per share approach from the Oil & Natural Gas Corporation, the Indian state-backed oil & gas business.
Reacting to the news, Cazenove said that the two bidders may join hands. "There has been high level engagement between the Chinese and Indian governments to facilitate co-operation between the two countries when investing / acquiring overseas oil assets. As far as we understand, this never resulted in a formal agreement, but rather an informal [Memorandum of Understanding] of sorts… Both companies have a declared appetite for oil assets, especially those that offer good production growth - in many ways, Imperial's portfolio is tailor-made for either or both. So, it is not inconceivable that ONGC (majority government owned) and Sinopec (an arm of the government) team up to avoid competing against each other. We note that neither company has ever consummated a foreign corporate takeover of a listed entity," the broker said.
JP Morgan also weighed in, suggesting the final take-out price may be as high as 1,409p per share.
The broker said: "Summing up, our risk-based calculation of the potential value of Imperial Energy suggests the possibility of an attractive return on the shares. At this stage, we believe the shares are only a moderate fundamental value proposition, but the optionality of the deal makes them significantly more interesting."
Elsewhere, the pub operator Punch Taverns gained 17.25p to 274.75p following reports of potential bid interest from the private equity firm CVC Capital Partners.
Game was up 4.5p at 264.5p after UBS moved the stock to a short-term "buy".
"The games industry does not appear to have been affected by the consumer slowdown in the UK to date, implying some countercyclical qualities to the Game business model. Competitive threats also appear overdone, with pricing remaining relatively stable at present. We view the risk from digital downloading as a long-term concern and unlikely to affect forecasts for this cycle," the broker said.
Centrica, up 3.5p at 300.5p, and British Energy, up 13p at 713p, were firm as speculation mounted about a possible all-share merger between the two companies. The hopes follow the break down of takeover talks between British Energy and France's EDF.
The mining sector proved a drag on the FTSE 100 as metals prices moved lower -Eurasian Natural Resources Corporation was the worst off, down 50p at 1006p. Kazakhmys, at second place on the loser board, was down 62p at 1,361p, and Vedanta Resources slipped by 83p to 1,828p.
The banking sector was also down following results from HSBC, down 19p at 818p. The bank reported a 28 per cent drop in first half profits, broadly in line with analyst forecasts. In the wider sector Standard Chartered was weaker by 50p at 1443p and HBOS lost 5.25p to 297p.
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