Market Report: Energy explorers boosted by discoveries in Africa

Toby Green@greentoby
Tuesday 27 March 2012 00:29

For the energy explorers, Africa was the place to be yesterday. Oil and gas discoveries, promises of tax breaks and even talk of possible takeover activity gave a boost to companies operating in the continent, including Afren, which closed on the mid-tier index's leaderboard.

The group – which is announcing its preliminary results today – climbed 7p to 131p following reports claiming Svenska Petroleum, which is privately owned by the Saudi billionaire (and one of the richest men in the world) Mohammed Hussein al-Amoudi, is being put up for sale.

With the Swedish explorer holding assets across West Africa, including in a number of countries where Afren operates, the news prompted Westhouse Securities to claim that a sale could "reignite M&A" across the region.

Pointing out a deal would put a price on reserves, the broker's analyst Andrew Matharu added that "it may even put Afren in the M&A spotlight". The firm is frequently the subject of takeover speculation, as is Bowleven, which was also highlighted by Mr Matharu as a possible beneficiary of revived takeover speculation in the event of a sale of Svenska.

Bowleven – the subject earlier in the year of potential bid interest from Dragon Oil before it walked away – had its own good news to celebrate. The group shifted up 19.44 per cent to 105.5p on AIM after unveiling an increase of its resources estimates for its operations off the shore of Cameroon, while it also announced that first-half losses had dropped to $5.5m (£3.5m), down from $15.7m a year earlier.

These were by no means the only reasons to be cheerful over the Africa-focused explorers, however. Tullow Oil revealed it had discovered black gold in Kenya, the first to be found in the country – another place where Afren has assets. In addition, officials from the Kenyan government said there was a good chance a tax break could be introduced for the sector, as Tullow topped the Footsie by advancing 97p to 1,570p.

Still, that was nothing compared to Ophir Energy's move. It shifted up 18.81 per cent to 477.6p on the mid-tier index after announcing that, together with partner BG (27p higher at 1,519p), it had made a huge gas find off the coast of Tanzania – again where Afren operates.

Takeover speculation has been circling Ophir recently, and although JP Morgan's Jessica Saadat claimed "it may be too early for [the group] to be a takeover target", she pointed out that once the bid battle for Cove Energy (up 4p to 209p) is over, it will be "the only independent of note in East Africa".

After last week ended up being the worst of the year so far, the FTSE 100 managed to bounce 47.81 points higher to 5,902.7. Much of the credit for the rise was being given to US Federal Reserve chief Ben Bernanke, whose latest comments were raising hopes of a third round of quantitative easing.

Smiths Group ticked up 29p to 1,049p after winning a contract worth more than €100m to provide Qatar's New Doha International Airport with security scanning equipment.

A downgrade from HSBC left Icap 8.9p lower at 408.9p. The broker's scribblers changed their rating on the interdealer broker to "underweight", saying there was "little scope for positive surprises" from its upcoming pre-close trading statement.

Down on the FTSE 250, Cable & Wireless Worldwide slumped 0.75p to 36.75p in the wake of reports over the weekend claiming both Vodafone (up 0.7p to 174.3p)and India's Tata Communications want more time to decide whether to make a formal bid ahead of Thursday's "put up or shut up" deadline.

Meanwhile Cable & Wireless Communications, the company from which it demerged in 2010, was helped by a late spurt to close 0.8p better off at 32.97p. The move was accompanied by the revival of vague speculation it could be a takeover target, although traders played the rumours down.

Premier Foods continued its exceedingly good run down on the small-cap index as the debt-laden owner of the Hovis and Mr Kipling brands powered up 15.09 per cent to 15.25p. The group's move was put down to UBS's Alan Erskine raising his price target from just 2p to 10p, saying the likelihood of shareholders having their stake diluted had dropped.

However, the analyst still kept his "sell" advice, saying Premier's current share price "represents too big a leap of faith", while adding that now its bosses face the "hard work" of "re-energising and shrinking [the group's] portfolio".

The news it had signed a major contract with the troubled tour operator Thomas Cook (down 0.25p to 22.5p) saw Anite fly up 10.25p to 128p, while the software firm also said its full-year profits would at least be towards the higher end of the Square Mile's forecasts.

FTSE 100 Risers

* Aberdeen Asset Management 260.8p (up 10.9p, 4.36 per cent) Fund manager finishes high up the Footsie after announcing its clients put in £1.4bn of new money over the first two months of 2012.

l International Power 382.4p (up 9.6p, 2.58 per cent) Energy group rises as it reveals it is getting rid of its 17.4 per cent stake in Pakistan's Hubco while raising its holdings in power station Uch 1 to nearly 95 per cent.

FTSE 100 Fallers

* Polymetal International 935p (down 25.5p, 2.66 per cent) Russian gold digger sets a new four-month low, with its latest fall meaning its share price has now shed more than 20 per cent since February.

l Royal Bank of Scotland 27.75p (down 0.28p, 1 per cent) Bank retreats following the news that its private banking business Coutts has been fined £8.75m by the Financial Services Authority.

FTSE 250 Risers

* EasyJet 495.8p (up 34.4p, 7.46 per cent) Budget airline predicts it will post a smaller first-half loss than many in the City are expecting, as Numis Securities raises its rating to "hold" from "reduce".

l Ruspetro 203.7p (up 14p, 7.38 per cent) Russia-focused oil producer jumps after analysts from Credit Suisse initiate coverage by giving it an "outperform" recommendation and a 332p target price.

FTSE 250 Fallers

* Amlin 337.3p (down 3.4p, 1 per cent) London's largest listed Lloyd's insurer finishes deep in the red after scribblers from Nomura downgrade their recommendation from "buy" to "neutral".

l Dixons Retail 19.4p (down 0.15p, 0.77 per cent) Electricals chain – which has seen its share price add nearly 38 per cent over the previous two weeks – eases back as investors decide to bank profits.

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