THE SCOTSMAN: Market stumbles on Shell reserves news  

Sat 10 Jan 2004

Market stumbles on Shell reserves news

FTSE REPORT

THERE were two talking points around the trading screens yesterday - the jolt from oil giant Shell and the sparkling festive sales figures from supermarket group William Morrison.

Shell severely depressed the market after announcing it had overstated its proven oil and gas reserves - a significant barometer of future likely profits - by 20 per cent.

Nearly £3 billion was slashed from the shares of the Anglo/Dutch oil major, as the shares collapsed 30p, or nearly 8 per cent, to 371.25p.

The stock was the biggest faller of the day despite Shell’s assurance that the problem would not hit its financial results.

Rival BP also undermined the market with a depressed trading update, its shares closing the session off 8p, or 1.9 per cent, at 434.25p.

Oil is one of the main swing-sectors of the market, accounting for 20 points of yesterday’s market fall, and the dual announcements put paid to any fresh hopes that the FTSE 100 index could assail the 4,500 level on the day.

Instead, the index closed the session down 27.90 points at 4,466.30, and is now ten points lower than where it started 2004 following a 13 per cent gain in 2003 after three previous years of falls.

Sentiment was not helped in London by a lacklustre early showing on Wall Street following disappointing employment data.

Market watchers said the weakness of the US dollar, which approached the $1.85 mark against the pound, and the falling price of oil were also taking their toll on London’s leading shares.

One trader said: "We should bear in mind that this bearish sentiment is being compounded by a degree of profit-taking, since the London index has already strengthened by around 30 per cent over the last nine months."

One to catch the eye yesterday was supermarket chain William Morrison, which posted strong Christmas trading results.

The group, about to acquire rival Safeway for £3 billion, said like-for-like sales jumped an impressive 9.6 per cent excluding petrol in the six weeks to 4 January, a performance unlikely to be bettered by any of its rivals, analysts said.

Total sales in the period rose 16 per cent and shares in Morrison were 5.5p, or 2.4 per cent, stronger at 237.5p, while merger partner Safeway was 6p higher at 295.5p.

But mining stocks were out of favour after a strong recent run helped by perceived strong demand for metals from the burgeoning Chinese economy.

Traders said profit-taking was behind some of the falls, with Rio Tinto down 38p at 1470p and BHP Billiton off 11.75p at 463.25p.

Among the other blue-chips, Marks & Spencer was under pressure following Thursday’s lacklustre British Retail Consortium report into December trading and a disappointing update from House of Fraser.

M&S investors - already nervy ahead of a trading update from the chain on Wednesday - sent the stock 6p lower at 277.25p.

Elsewhere, shares in software group Autonomy lifted 24 per cent or 59.25p to 310p after benefiting from an investor upgrade, while Sage Group also strengthened 0.25p to 190.25p. But forecasts of record profits at computer games retailer Game failed to impress investors with the group’s shares down more than 13 per cent.

Analysts said the fall of 9.5p to 66p reflected profit taking as shares in Game had rallied strongly earlier in the week.

But there was better news for magazine publisher Future Network which added 0.5p to 64.5p after a trading update that forecast revenues growth for 2003 in excess of 11 per cent.

And pizza and pasta chain Ask Central gained 5.5p to 185.5p as investors eyed a potential bidding war following the emergence of a possible rival offer to its agreed takeover by City Centre Restaurants. City Centre fell 1.75p to 74.5p.

Despite yesterday’s oil-induced setback, market watchers remain broadly positive.

Peter Cockburn, an investment director at Scottish Widows, said: "The UK market is reasonably valued, and we think the economic data will continue to show signs of the green shoots of recovery."

It was a dappled day among the banks. Royal Bank of Scotland firmed 19p to 1670p and Barclays put on 3.5p to 514p. But HSBC gave up 15p to 877p, HBOS was down 3p at 747p and Lloyds TSB slid 0.5p to 260.25p.

WILLIAM HILL A GOOD BET?

BOOKMAKER William Hill failed to find favour with investors despite forecasting annual results at the upper end of market expectations.

Shares, which have more than doubled in the past year, were off 0.5p at 448p.

Traders said there had also been a bit of profit-taking as the shares are near their 52-week highs of 471p.

William Hill said it was optimistic about prospects for 2004 in its 1,600 betting shops.

One analyst said: "There might be a hiatus, but it is a strong defensive stock with a number of reasons to be optimistic for this year, not least betting from the European football championships with England’s involvement."

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