Ask any of the London market’s more speculative traders which companies are most vulnerable to a bid, and the Africa-focused oil explorer will likely be on their list . Even (Taiwan OTC: 6436.TWO– news) before last year’s oil market rout, a series of dry wells had sent Tullow Oil stock tumbling and encouraged talk the company might be bought. Shares that touched £16 in 2012 started 2014 at 855p.
The plunge in oil prices , which began in June, put further pressure on Tullow and by the end of last year the stock had more than halved to 413.9p, spurring yet more takeover speculation.
Those rumours were further fuelled by Royal Dutch Shell (Xetra: R6C1.DE – news) ’s £47bn offer for BG Group earlier this month, which many traders hope will spark a wave of consolidation in the sector. If it does, Tullow, up 42pc since the start of April alone, is unlikely to be among those explorers that receive approaches, UBS (NYSEArca: FBGX – news) analyst Daniel Ekstein said.
“Several potential deal ‘show-stoppers’ mean we would not chase the stock high on M&A hopes,” he cautioned.
A maritime boundary dispute between Ghana and Ivory Coast threatens the explorer’s key Tweneboa-Enyenra-Ntomme (TEN) oil project. Given the International Tribunal for the Law of the Sea is not due to give a final ruling on the clash until 2017 a “bid is unlikely”, the analyst told clients. If a takeover approach does materialise, there is also the matter of government clearance, he added.
“Change of control would likely require approval from multiple African governments and it is unclear how they would attempt to tax a corporate deal,” Mr Ekstein warned. Tullow remains caught up in a tax dispute in Uganda and has clashed with the government of Gabon over an oilfield licence extension, he noted. In 2010, Ghanian interference also led to the collapse of a deal between Exxon Mobil (Swiss: XOM.SW – news) and Kosmos Energy (NYSE: KOS – news) , the analyst reminded clients.
All of that served to dampen enthusiasm for Tullow, which fell as much as 8.4p, or 2.1pc, to 389.6p during intraday trade. The shares, which eventually closed up 3.6p – 0.9pc – at 401.6p, only rallied on an oil spike late in the day amid hopes that crude inventory growth is slowing.
A broad rally in mining shares lent support to the wider market, with the FTSE 100 closing up 57.5 points at 7,052.13 and the second-tier FTSE 250 finishing the session 31.04 better at 17,603.47. China, which was responsible for a sell-off in global stock markets at the end of last week, drove a recovery.
On Friday, worries the exuberant Chinese market will falter following a crackdown on margin trading and new rules encouraging short-selling rattled investors around the world. But risk sentiment revived yesterday after the People’s Bank of China (HKSE: 3988-OL.HK – news) gave another stimulus boost to the world’s second-largest economy , which is also the biggest consumer of commodities.
Hopes the move will spur Chinese demand for metals in turn drove London-listed mining stocks higher on Monday. Anglo American (LSE: AAL.L – news) climbed 27½p to £10.38, Rio Tinto (Xetra:855018 – news) was up 73p at £28.74 and BHP Billiton (NYSE: BBL – news) gained 35½p to £14.81½.
However, it was Ashtead that was the single-biggest FTSE 100 riser, gaining 32p to £11.44 after Barclays (LSE: BARC.L – news) analysts said the US-focused construction and industrial equipment hire business was their pick of the mid- and small-cap London-listed services companies.
“We believe Ashtead is extremely well-positioned in the recovering North American equipment rental market and expect a combination of market growth and market share gains to deliver strong top-line growth,” they told clients. In addition, recent weakness in the share price has presented a buying opportunity, the analysts advised.
Northgate , the van rental firm, was boosted 24p to 650½p after the experts at Barclays lifted their recommendation to “overweight”. The roll-out of more UK branches, the strengthening British economy and a burgeoning recovery at its Spanish operations were all reasons to buy the shares, they said.
Conversely, downbeat analyst comment pushed clothing-to-sugar conglomerate Associated British Foods 43p lower to £28.63 amid caution ahead of Tuesday’s half-year results.
“Primark has had a fairly slow start, by its own standards, with like-for-like sales, which we estimate to be flat, impacted by the warm autumn in Europe and margins impacted by higher mark-downs, but reported sales should stay strong,” analysts at influential broker Bernstein forecast. “Meanwhile, sugar has been impacted by a further large drop in the EU sugar price, such that it should only just break-even in H1.”
Tesco (Xetra: 852647 – news) , which on Wednesday reports its highly-anticipated first set of annual results under new boss Dave Lewis, also declined 1.7p to 235p. There has been speculation ahead of the numbers that the beleaguered grocer will launch a rights issue, talk that well-followed HSBC analyst David McCarthy dismissed on Monday.
The supermarket group would have undertaken a fund-rasing to “protect its credit rating” and, given it has now been downgraded, the incentive for a rights issue has gone, he told investors.
Oilfield services group Petrofac lost 101½p, or 10pc, to 912½p after warning that it would book an extra £130m of losses on the Laggan-Tormore gas plant project on Shetland, after the initiative was delayed by a month because of harsh weather and industrial action. Petrofac had already reported $230m of losses for the project at its full-year results in February, and Berenberg analysts on Monday said there could be yet more to come.
Finally, minnow Boxhill Technologies surged 15.9pc, a rise of 0.015p to 0.11p, despite dismissing speculation that it had received a bid from Singpapore.