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Market report: Monday close

By Mickey Clark for MailOnline
Updated: 12:06 EDT, 2 June 2008

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Shares in the big oil explorers have enjoyed a strong run in the wake of a sharp rise in crude oil prices, but one of the City's big-hitters is telling investors there is still plenty to go for.

Latest from the stock exchange

Demand for oil remains high, resulting in urgent action on the part of the explorers to keep up with events, observes Morgan Stanley. It points out the sector is trading at a 55% discount to its low estimate of net asset values, and the sector's performance is continuing to be driven by recent exploration success.

'We believe intense exploration news flow over the next 12 months will also ensure that the exploration "option" value in share prices will not fall away immediately,' it adds.

Morgan's top picks in the sector include Tullow, 22½p better at 912½p, increasing its target from 1090p to 1230p, and Soco International, 12p cheaper at 1908p, which it has moved from 2780p to 2960p. Morgan Stanley has also jacked up Cairn Energy from 3150p to 4350p. Its shares were 2p up at 3368p.

News of a big gas discovery in Egypt lifted Dana Petroleum 47p to 1877p. The company described test results as 'very encouraging' at the WEB-1X well in the West El Burullus area in the Nile Delta. Evolution responded to the news by raising its target from 1900p to 2000p.

Daniel Stewart repeated its buy rating and 1500p target on Imperial Energy, 60p up at 1040p following its latest discovery in the Kiev Eganskoye field. Valiant Petroleum slumped 45p to 937½p after being forced to plug and abandon its exploration well at the Globe prospect in the North Sea because it failed to find any oil. Its secondary target, Roebuck, was also dry.

Shares generally were laid low by the Bradford & Bingley crisis. The stricken buy-to-let specialist fell 21¼p to 67p after a temporary suspension. HBOS gave up 40p to 360p, after briefly touching 344½p, while shareholders still await details of its proposed £4bn rights issue.

Royal Bank of Scotland, which is tapping shareholders for £12bn by way of a fully underwritten rights issue at 200p, traded 2½p lighter at 226p as more than 240m shares changed hands. The price touched 219p at one stage amid fears the bulk of the shares will be left with the underwriters. Other losers included Alliance & Leicester, 12¼p to 414p, and Barclays, 9½p to 365½p.

The FTSE 100 index briefly dipped back below 6000 before reducing the fall to close 45.9 down at 6007.6. On Wall Street, share prices fell sharply following a further drop in construction spending. The Dow tumbled 115.5 to 12,522.8.

Shares in the London Stock Exchange dived back below 1000p for the first time since March 2006, with a loss of 68½p to 958½p. Morgan Stanley has slashed its target from 1060p to 945p, while repeating its underweight rating. It has also cut its earnings estimate for next year by 6% and for 2010 by 11%.

Imperial Tobacco fell 55p to 1970p on worries about Government proposals to enforce plain packaging on cigarettes.

Pubs chain Mitchells & Butlers fell 13¾p to 311¼p after Goldman Sachs turned seller with a 290p target. It complains the group's conversion to a real estate investment trust is unlikely, while a sizeable acquisition would require the issue of new shares. Asia-based Guoco has raised its stake in Rank Group, ½p firmer at 88¼p, to 46.9m shares, or 12%. Genting also holds 9%.

ABN Amro has begun coverage of Go-Ahead, down 27p at 1521p, with a 'buy' rating and target price of 1920p. It says rising fuel prices for its buses, London commuter exposure in rail and a franchise expiry have all weighed on Go-Ahead's shares. However, it adds, further weakness in the shares will be limited.

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TOMORROW'S AGENDA

• Soaring oil prices are set to overshadow Ryanair's full-year results. The budget carrier has almost no fuel hedged for the coming year, which could push up its fuel bill up by over €500m (£394m). Analysts warn it will be forced to raise ticket prices to offset higher costs and this will hit demand. UBS forecasts profits of €489m on the back of revenues of €2.7bn.

• Mobile phone retailer Carphone Warehouse publishes full-year figures. Last month, it announced a £2.2bn joint venture with US electronics giant Best Buy to roll out vast out-of-town stores across Europe.

• Activity in the construction sector is thought to have slowed in May for the third consecutive month. Last month, the Chartered Institute of Purchasing and Supply reported that the headline Purchasing Managers Index figure had fallen to its lowest since 1998.

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