Merger alert for energy firms sends Soco soaring
SOCO International was in demand as one America’s biggest brokers predicted Britain’s independent oil and gas exploration industry is likely to see another wave of mergers.
Michael Alsford, an analyst at Citigroup, said: ‘Deal activity, particularly in North America, has started to accelerate, helped by the recovery in oil prices.’
He said mergers remain a strategic option for independent exploration and production companies ‘to increase their scale and relevance’.
Alsford suggested one of the best deals could be a combination of Soco International – which looks for oil and gas in Vietnam and the Republic of Congo –with Ophir
Energy, as they both have Asian operations.
Although Ophir is well known for its African assets it also has operations in Myanmar, Thailand, Indonesia and Malaysia.
Soco International rose to the top of the FTSE small cap leaderboard, climbing 6.4pc or 8p to 132.25p. Ophir, meanwhile, dipped 1.7pc or 1.2p to 71.3p.
Another likely transaction, according to the Citigroup analyst, could be a combination of Premier Oil, down 3pc or 2.25p to 73p, and
EnQuest, which slipped 4.4pc or 1.5p to 32.5p.
Elsewhere in the sector, BP said it will combine its Norwegian exploration and production assets with Det norske, a company focused on the Norwegian continental shelf. BP, which fell 0.5pc or 1.85p to 368.9p, will receive 135.1m shares (around 30pc) of the new business, which will be listed in Norway.
Overall, the FTSE 100 shed almost 1.2pc, or 70.79 points, to 6044.97 amid renewed jitters about Britain leaving the European Union and a mild sell-off in the US. The bluechip index’s fall came despite bullish remarks from two of the City’s top stockbrokers. Deutsche Bank strategists said: ‘ In the case of a “Leave” vote in the UK referendum, we expect UK equities to outperform the European market, given the likely pound depreciation in such a scenario as well as the market’s defensive sector structure.’
JP Morgan also declared British shares are cheap and will benefit from a bounce back in emerging markets because so many Footsie companies have exposure to developing economies.
The broker concluded: ‘Brexit remains a clear concern, but [the pound] is a natural hedge for UK stocks, with 72pc of sales derived from abroad. We believe that UK equities will hold out relatively better than continental ones in the event of UK leaving.’ Lloyds Banking Group took the wooden spoon, retreating 4.2pc or 2.82p to 64.23p despite a push from JP Morgan. The broker argued the bank ‘remains our highest conviction UK idea into second-quarter results’.
Sky also drifted 3.7pc or 34p lower to 891.5p as both Barclays and Citigroup cut their target prices on the stock. Barclays reduced its target price from £11.25 to £11 while Citigroup reduced it from £14 to £13.50.
BT Group was another faller, retreating 2.75pc or 11.6p to 410.95p, as broker Berenberg cut its target price on the stock.
On a more positive tack, satellite operator Inmarsat announced a ‘strategic partnership’ with Australian broadband provider Speedcast International to offer better data connection at sea.
In the next five years, Speedcast will roll out Inmarsat’s maritime high- speed data service Fleet Xpress for roughly 2,000 vessels. The news helped Inmarsat’s shares gain 1pc or 7p to 710.5p.
Otherwise, defensive stocks, such as gold mining companies and pharmaceutical businesses, peppered the FTSE 100 leaderboard.
Randgold Resources, for example, perked up 0.68pc or 45p to 6670p while GlaxoSmithKline put on 0.18pc or 2.5p to 1416p.
Among the mid-caps, Ocado tumbled 8pc or 19.7p to 224.3p as traders continued to worry about the impact of Amazon’s launch into fresh grocery in the UK.
Restaurant Group, which has seen interest from private equity firms Apollo and Cinven, dipped 0.6pc or 2p to 356.6p despite an upgrade from Citigroup to ‘neutral’.