Brokers open taps on oil firms
‘THIS can get worse!’ is not what oil explorers, or indeed investors, want to hear.
However, Investec scribblers Brian Gallagher and Neill Morton told it like it is yesterday. In a note to clients, they warned that the valuations of oil companies still ‘assume higher oil prices’ and the ‘narrative’ for the sector is ‘survival’.
The analysts advised investors to hit the sell button on Cairn Energy and Tullow Oil, arguing that ‘there is little left in the kitty’ for new exploration for Cairn, while African focused Tullow is ‘little more than a leveraged bet on oil’.
Investors took their advice and Cairn’s shares slipped 2.4p to 151.7p and Tullow was out of favour by 7.8p to 204.5p.
The price of Brent Crude is down nearly 45pc since the start of this year, currently at around $47 a barrel – a long way from the $115 it hit in the summer of last year.
Investec said the weak oil price could push the sector’s earnings down nearly a third, quarter-on-quarter, and by nearly 60pc on an annual basis.
The oil giants are in sharp focus this week with BP, Royal Dutch Shell and BG Group all set to update on their third quarters.
BP’s results today are expected to show pre-tax profits down by as much as 70pc to just over £1bn and its shares declined 3.7p to 384.4p in advance of the downbeat results.
This will be followed on Thursday by Shell (down 25.5p to 1750p) which is also expected to record a 55pc slump and BG, which Shell is in the process of taking over for around £55bn, could tumble as much as 80pc. BG lost 6.5p to 1050.5p yesterday – a way off the 1153p the shares jetted to after the deal with Shell was announced in the spring – but still above the pre-bid price of 910p.
Mike van Dulken, market analyst at spreadbetter Accendo Markets, said the oil market is ‘still struggling with global oversupply’ and the price of oil is ‘highly unlikely to make it above $60 for any length of time.’
The wider markets were lacklustre. The benchmark index slipped back from the twomonth high experienced last week. There just wasn’t enough good news out there to perk it up.
The FTSE 100 fell 27.06 points to 6417.02 and the FTSE 250 eased 62.04 points to 17,178.66. Over in the US, the Dow Jones also opened lower and data revealing new home sales had dropped to 468,000 in September, the lowest level since 2013, kept it that way. It fell 23.65 points to 17,623.05.
The cyber hacking scandal at TalkTalk Telecom Group devastated its share price for the second day after the issues were con- firmed on Friday morning. It lost another 12.3pc or 31.5p to 225.3p yesterday. Firms linked to the telecoms sector also suffered with Sky down 17p to 1103p and retailer Dixons Carphone 2p worse off at 456.2p.
Talk of a possible sale at Aberdeen Asset Management helped its shares fly up the Footsie. The rumours were dampened during the day but it still finished top of the leaderboard, up 10.3p to 361.7p.
Pearson, the education and media group that is selling the FT to Japanese group Nikkei, appointed Sidney Taurel, the former chief executive of pharmaceutical giant Eli Lilly, as its chairman. Pearson, which last week suffered a profits warning, saw its shares rise 4.5p to 905p on the appointment.
Star stock picker Neil Woodford has been pushing for drugs giant GlaxoSmithKline to separate its HIV business ViiV, its consumer healthcare division and Stiefel, its dermatology unit, from its main medicines and vaccines arm. The shares were flat yesterday at 1369p.
Bradford-based chain Morrisons doesn’t appear to know what it is doing to compete in the convenience store market.
On the day that more than 100 of its former convenience shops reopened as My Local stores after Morrisons sold them earlier this year, it announced plans to ‘pilot’ a convenience ‘offer’ at petrol stations.
It doesn’t appear to be able to make up its mind. It first opened convenience stores back in 2011 – well behind rivals. But following the ousting of chief executive Dalton Philips, new boss David Potts decided to sell off its convenience shops – as part of a turnaround plan he put in place when he joined earlier this year.
He believed it had to sort out other parts of its business and had not made enough progress in the sector to properly compete with rivals. However, confusingly now he has announced the supermarket will pilot convenience stores in five petrol filling station shops owned by Motor Fuel Group.
Investors were unfazed and its shares rose just 1p to 176p.
AIM-listed veterinary services group CVS has bought 13 surgery-strong Bristol-focused vets business Highcroft for £7.4m and its shares were 1.5p healthier at 670p.
AMERICAN activist investor Edward Bramson has renewed his attack on British private equity firm Electra, accusing it of exaggerating its investment returns. Electra said it had notched up 25pc in the year to September 30. But Bramson’s investment vehicle Sherborne yesterday questioned the way Electra (up 75p to 3710p) calculates its performance. Bramson is seeking a place on the board.