Market report: Wednesday close
BRITAIN'S second-biggest company, BP, managed to steady the ship following three consecutive days of losses, but there are signs that some in the City are beginning to turn against the oil giant after closing its Prudhoe Bay pipeline.
The price rallied 5½p to 619½p - despite going ex its 5.3p dividend - reducing the falls since Thursday to 33½p.
BP began shutting the 22-mile Alaskan pipeline on Monday after tests showed leaks due to corrosion. The Prudhoe pipeline carries about 400,000 barrels of oil a day, supplying around 8% of US production. News of the shutdown has sent the oil price climbing above $78 a barrel and dealt a bodyblow to BP's green credentials.
Swiss broker UBS has repeated its buy rating on BP shares but has slashed its 12-month target from 760p to 715p to reflect the effects of Prudhoe. This comes despite assurances by the company that repairs will be completed in phases, allowing production to be resumed on a limited basis.
UBS says it has assumed a worstcase scenario for the Prudhoe site. In other words, that it would remain shut until the end of the first quarter. The broker also insisted its new reduced target price continued to suggest scope for improvement on the current price.
Rival broker SG Securities says deferred production from Prudhoe could reach 100,000 barrels a day until the end of the year. But this does not take into consideration the negative impact on the group's downstream operations, which are difficult to estimate.
The potential for strong earnings growth at BP is already priced into the shares, which command a premium to its peers.
By contrast, Royal Dutch Shell put on 25p to 1950p, reflecting the higher oil price which some experts say is now on target to reach $90 a barrel in the short term.
Share prices spent a volatile morning after an early mark-up. Worries about inflation continue to cast a shadow over sentiment. The Bank of England's monetary policy committee has forecast that inflation will pick up short-term, before returning to its target range next year. That suggests the MPC may have to follow up last week's quarter-point increase in interest rates with further rises.
The FTSE 100 index touched a low for the day of 5778.2 before rallying to trade 42.4 higher at 5860.5. The full list of companies going ex-dividend was the equivalent of a 15-point fall in the index.
Mining companies were among the biggest fallers with Anglo-Swiss outfit Xstrata down 27p at 2190p after Canadian copper miner Falconbridge recommended its £8bn bid.
BHP Billiton fell 13p to 985p and its partner Rio Tinto was 27p off at 2722p with still no sign of a settlement of the strike at their Escondida mine in Chile, the world's biggest copper producer.
Against the trend, British Airways moved nearer the 400p level with a rise of 11¾p to 390p after UBS raised its sights on the shares from 420p to 500p and repeated its buy rating. It believes the consensus forecast on earnings will have to rise on recent profits.
Biofuels dropped back below 100p with a fall of 18p to 93½p after broker Numis voiced worries about its high debt levels. As a result, it has cut its rating on the maker of biodiesel from hold to sell. It points out the group is sensitive to the oil price and earlier attempts at developing a hedging strategy were disastrous and left it heavily in debt.
The broker sees the need for refinancing before the year-end, which will create uncertainty and hit the share price. At the same time, Biofuels is sensitive to government subsidy and there is evidence that some governments are cutting back.
Investors are paying an enterprise value of £120m for a business that should cost considerably less than £50m to replicate. Numis reckons there are better, lower risk opportunities elsewhere.
Chemicals supplier Elementis stayed steady at 85½p following a placing of 21m shares at 82½p by broker ABN Amro. Commercial food equipment supplier Enodis was the biggest faller among second-liners, tumbling 37½p to 179½p after the breakdown of bid talks with US rival Manitowoc.
The American group had been willing to pay £890m, or 220p a share, for Enodis, which supplies fryers and grills to fast food chains such as McDonald's and Burger King. It blamed the breakdown on regulatory issues.
Broker Bridgewell says the news is disappointing but does not rule out a bid for Enodis from another US company, Middleby.
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