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Financial Times: Shell puts in a dismal performance after downgrade on European oils: Thursday 1 December 2005

 

By Robert Orr, Peter Garnham and Delphine Strauss

Published: December 1 2005

 

Royal Dutch Shell was the worst performer among the leading oil companies yesterday as French broker SG Securities issued a "sell" note on the index heavyweight.

 

Part of a wider downgrade on the European oil and gas sector, SG said a sharp rise in oil companies' share prices this year left little upside, particularly given recent negative momentum on crude.

 

For Shell, SG said this concern was exacerbated by "uncertainty over forthcoming rises in capex". It cut its fair value target on the stock from 19.20 to 16.50.

 

With the price of crude fluctuating yesterday, Shell weakened 2.3 per cent to 18.65.

 

Rival BP, which SG said was undervalued, lost 1.2 per cent to 634p.

 

A nervy wider market saw a broad-based retreat with the index again failing to break through the important 5,500 level.

 

The FTSE 100 lost 67.8 points, or 1.2 per cent, to 5423.2 while the mid-cap FTSE 250 fell 19.6 points or 0.2 per cent to 8327.9. Volumes were a healthy 3.7bn.

 

Life assurers were lower amid uncertainty as to what effect the proposals by Lord Turner's pension commission may have on the industry. Aviva fell 2.4 per cent to 686p.

 

Greig Paterson, analyst at Keefe, Bruyette & Woods, said proposals for a national pension savings scheme would be bad news for companies writing insured annuities and group pensions business. He said he expected the government decision on pension reform, which is due next year, to water down Lord Turner's proposals.

 

Stocks moving ex-dividend acted as a brake. The worst performer was brewing group SABMiller, down 4.3 per cent to 10.27.

 

A host of downgrades also pulled the indices lower. Royal & Sun Alliance fell 2.8 per cent to 113p as JPMorgan cut the insurer to "neutral". Compass lost 2.6 per cent to 211p as Credit Suisse First Boston pegged the caterer back to "underperform", while British Land, off 2.3 per cent to 979p, led property stocks lower after a cautious note from UBS.

 

In the currency markets, traders reported strong buying of sterling related to M&A activity, suggesting further cross-border offers for UK companies.

 

Some of the flows were said to be related to Saint-Gobain's offer for plasterboard maker BPB. But up to 2bn of Swiss francs was seen being sold for sterling, suggesting the possibility of a bid by a Swiss company for one in the UK.

 

Perhaps coincidentally, Switzerland's Novartis was again named as a possible bidder for drugs group SkyePharma, as were AstraZeneca and Merck of the US. SkyePharma jumped 7.6 per cent to 49p.

 

Daily Mail & General Trust surged 11 per cent to 750p after it proposed the sale of Northcliffe Newspapers, one of the UK's largest regional newspaper groups and home to titles such as the Aberdeen Press & Journal. Lorna Tilbian, analyst at Numis, called the proposed sale "extraordinary" given the group's history in regional titles.

 

She said private equity buyers would be interested, and raised her target price on the stock from 740p to 830p to reflect the valuethat could be unlocked from the sale.

 

Fellow newspaper groups Johnston Press and Trinity Mirror rose 1 per cent to 478p and 1.8 per cent to 608p on hopes they, too, could attract private equity buyers.

 

B&Q owner Kingfisher gained 2.2 per cent to 225p as a sharp fall in third quarter profits proved not as bad as some had feared.

 

MFI Furniture, which will issue an eagerly awaited trading statement today, was 5.3 per cent higher at 74p.

 

Go-Ahead Group, owner of the Thameslink franchise, climbed 8.4 per cent to 15.45 after it said its joint venture Govia had been selected to run the new eight-year Integrated Kent rail franchise.

 

Corus firmed 6.7 per cent to 55p after the steelmaker said prices had stabilised and were beginning to recover.

 

Engineering group Charter was 5.8 per cent higher at 495p as ABN Amro upgraded the stock to "buy" following a well received trading update late on Tuesday.

 

Colt Telecom rose 1 per cent to 58p after it said it had won its largest contract yet, worth 80m over five years, with German health insurer AOK.

 

Pub group Mitchells & Butlers, owner of the All Bar One chain, fell 4.2 per cent to 373p on concerns about subdued consumer spending and higher regulatory and energy costs.

 

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