Stock market report: Monday close

By Mickey Clark for MailOnline
Updated:

 

News of plans for a multi-billion-dollar spending spree by Brazil's biggest oil producer put some pep back into the struggling oil sector today.

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Set against a depressed crude price, production cutbacks and currency losses, the sector has struggled to perform.

JPMorgan Chase says there may be more bad news on the way, and has told clients to watch out for 'negative surprises' on output growth as spending is cut back.

It reckons that, despite the impact of short-term Opec cuts, longer-term exploration and production targets will be hit by production delays and lower levels of investment.

But one company cocking a snook at this theory is Brazil's Petrobras, which has pledged to spend a whopping $28.5bn (£20.5bn) on its massive pre-salt reservoirs just off Brazil. BG Group, up 40p at 958p, has a stake in the project, and should have no trouble funding its share.

Merrill Lynch points out BG has no debt, and its share of the capital expenditure would see gearing rise to only 30%, based on an oil price of $50.

Oil-services group Petrofac jumped 48p to 399½p after winning a $2.3bn contract to help develop an Abu Dhabi oilfield. Evolution securities says companies that have exposure to the Middle east can still do pretty well despite falling oil prices.

Arden Partners says the contract will not only reinforce Petrofac's reputation but also provide the foundation for further potential multi-billion-dollar contracts.

Other oil companies ticking better included Tullow, up 61p at 698p, and Royal Dutch Shell, which rose 80p to 1722p ahead of full-year numbers on Thursday.

Record profits in the third quarter are likely to be replaced by the biggest drop in profits for 10 years during the final quarter. Goldman Sachs has repeated its buy rating on shell and raised its target from 2400p to 2500. It also says it expects good news on the cashflow front. It has raised BP, up 20½p at 508p, from 600p to 650p, but rates it neutral.

Also backed by a charge among the banks, the FTSE 100 index surged 156.5 points to 4209. wall street rose sharply supported by some good news, at last, on the housing front. sales of existing homes rose 6.5% last month as buyers took advantage of falling prices. The Dow rose 133.3 points to 8210.8.

Barclays led the charge among the banks with a rise of 37&frac12p to 89.2p. It was pursued by Lloyds Banking, up 15.9p at 65.2p, and Royal Bank of Scotland, 2.4p ahead at 14½p. The life assurers were also swept higher along with the banks. They depend heavily on the fortunes of the stock market, and have suffered from the slump in share values of late. Aviva rose 37¼p to 301¼p, Prudential 29¾p to 318¼p and Legal & General 4.1p to 59½p.

Citigroup has taken its red pencil to the rating of mining giants BHP Billiton, 85p better at 1250p, and Xstrata, up 40½p at 720½p. It has cut BHP from buy to hold and lowered its target from 1530p to 1260p while Xstrata is dropped from hold to sell, with the target slashed from 900p to 635p to better reflect the economic slowdown and falling commodity prices.

Citi says Xstrata has seen a big rise in its cost base compared with those of its rivals. BHP, it adds, has performed well of late, and the scope for further improvement in its shares is limited. It expects copper, aluminium, zinc and nickel prices to carry on falling.

One story doing the rounds claimed that Rio Tinto may turn to shareholders with the terms of a major refunding at 900p a share. That is said to form part of a plan to reduce debt to $10bn this year.

The group has already announced plans to sell aluminium division Alcan Ningxia for $125 m. But the share price has come rattling back since BHP last year decided against making an offer for Rio of about 6000p a share. The price today rose 133p to 1656p.

On AIM, shares of property services supplier Speymill were suspended at 10¼p pending clarification of the company's financial position while shares of Bioganix were frozen at 3½p.

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Tomorrow's agenda

Water and sewerage giant Severn Trent updates the market on trading in the third quarter. The group is considered to be fairly recession-proof, but analysts have expressed concerns over the financing of its investment programme. it has also been hit by a series of fines from water watchdog Ofwat.

Insurance group Friends Provident reports new business figures for the fourth quarter. Earlier this month, the UK life insurer slashed rates on many of its 1.2m with-profits policies. its shares plunged to all-time lows in October amid investors' fears over its solvency, but chief executive Trevor Matthews dismissed the worries as irrational.

Soaps-to-spa group PZ Cussons posts first-half results. The imperial Leather maker appears to be faring well through the economic storm, with sales and profits expected to be up on last year. Cussons bought London spa The Sanctuary last year, and has said that it would be interested in making further acquisitions.

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