The Guardian: FTSE shrugs off retail slump to close higher: BP-Royal Dutch Shell and Royal Dutch Shell-Total are feasible combinations

EXTRACT: Royal Dutch Shell added 28p to £18.04. A hefty note from ABN Amro suggests the company should merge, either with BP or Total. “In our opinion, the creation of an oil mega-major would generate important strategic and financial benefits for the companies and significant value for shareholders,” wrote ABN. “BP-Royal Dutch Shell and Royal Dutch Shell-Total are feasible combinations. The regulatory responses to both would be manageable.

“Despite the need to divest some downstream activities, we believe the synergy potential of both combinations would be material, with pre-tax cost savings and revenue enhancements of up to $10.3bn per annum.”

The bottom line is ABN is recommending a buy with a £21.50 target price. It says this could rise to £30 in the event of a merger.

THE ARTICLE

Nick Fletcher
Wednesday December 6, 2006
The Guardian

A pause in the dollar’s freefall gave a lift to Icap, the interdealer broker, yesterday. Its shares have been under pressure recently as investors fretted about the impact of a weak US currency on its transatlantic operations.
But traders pointed out the company hedges its dollar exposure, and yesterday the shares recovered 16.75p to 462p. Sentiment was also helped by news the company had bought back 2m shares on Monday at 444.86p. Icap said it would buy back more shares “in the near term … in recognition of the recent weakness in [the] share price”.

Elsewhere retailers were in the spotlight. Woolworth investors – including Icelandic raider Baugur – might have wished otherwise. Shares in the retailer slumped 2.75p to 34p – a 7.5% drop – after it warned full-year profits would be at the lower end of analysts’ expectations after like-for-like sales in the past 18 weeks fell 6.5%.
Even the mighty Tesco disappointed. Its shares lost 4p to 393.5p despite third-quarter sales meeting expectations. Analysts said the market usually expected Tesco to beat forecasts, and took offence when this did not happen.

Morrisons Supermarkets, down 4.25p to 257.5p, and Sainsbury, 3.5p lower at 400p, were caught in the fallout. Debenhams was also under pressure. It lost 0.5p to 184.5p – well below the 195p flotation price earlier this year.

Despite the retail rollercoaster, the overall market managed to move higher. The FTSE 100 index closed up 36 points at 6086.4, while the 250 climbed 82.2 points to 10834.1.

Mining shares were among the risers, with Antofagasta up 23.25p to 530p on vague bid talk.

Mobile phone retailer Carphone Warehouse rose 20.75p to 291.75p after the company met Merrill Lynch analysts on Monday, who were said to have come away impressed.

Whitbread was 13p higher at £15.81, as it just managed to achieve promotion to the FTSE 100 index. It came in at position 91, making it just eligible at the expense of British Energy.

Whitbread’s shares have been lifted in recent weeks by takeover talk. There have been suggestions that US group Starwood had taken a 3% stake but so far no official announcement has come to confirm that. Credit Agricole has built up a 4.35% shareholding, and some traders believe that some of this is in the form of contracts for difference and may conceal a potential predator. Others say Credit Agricole maintains the shares are held for its own benefit, to gain tax benefits from Whitbread’s proposed £350m return to shareholders.

Whitbread itself has been reshaped into four divisions – Premier Travel Inns, pub restaurants, David Lloyd Leisure centres and Costa Coffee – by chief executive Alan Parker and finance director Chris Rogers.

Other FTSE changes include the promotion to the FTSE 250 of Ashmore, Hochschild Mining, UK Coal and UK Commmercial Property Trust. Those demoted are Wolfson Microelectronics, Whatman, Photo-Me International and Computacenter.

All the changes need to be ratified by FTSE today.

Royal Dutch Shell added 28p to £18.04. A hefty note from ABN Amro suggests the company should merge, either with BP or Total. “In our opinion, the creation of an oil mega-major would generate important strategic and financial benefits for the companies and significant value for shareholders,” wrote ABN. “BP-Royal Dutch Shell and Royal Dutch Shell-Total are feasible combinations. The regulatory responses to both would be manageable.

“Despite the need to divest some downstream activities, we believe the synergy potential of both combinations would be material, with pre-tax cost savings and revenue enhancements of up to $10.3bn per annum.”

The bottom line is ABN is recommending a buy with a £21.50 target price. It says this could rise to £30 in the event of a merger.

Still with broker notes, Vodafone jumped 3.25p to 138.25p as Goldman Sachs added the mobile phone operator to its buy list.

Lower down the market, nurseries and overseas schools group Nord Anglia jumped 22p to 260p. The company, which recently saw off predatory interest from investor Bryan Myerson, is set to join the Small Cap index tomorrow, prompting tracker funds to top up their holdings. There was also a bullish note from Investec, suggesting a sum-of-the-parts valuation of 300p a share.

Accuma, the financial group that specialises in individual voluntary arrangements, added 12.5p to 238.5p. Traders said it had made an upbeat presentation to Teather & Greenwood.

Finally, not only did the Aussies win the test match, their investors also got first dibs on an upbeat trading statement from investment group Henderson. The company said it had been asked by the Australian Stock Exchange if it knew why its shares had moved higher recently. It said not, but later issued an update in Melbourne saying it expected full-year profits to be higher than last year’s £63.4m. The shares climbed 6.75p to 127.75p.

Sunny outlook

ReneSola, a Chinese solar energy company that floated on Aim in August, was in demand yesterday. Its shares jumped 106p to 394p with nearly 8m shares traded. The company recently announced a significant expansion of its production facilities. A new manufacturing plant at its site near Shanghai is already due to be completed next February, and the next phase of construction is expected to start before the end of this year. It is in negotiations with a Chinese bank to provide the funds for this latest development, as well as credit for the company’s working capital requirements. Dealers said part of the reason for yesterday’s rise was that the company is currently on a promotional roadshow in the US.

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http://business.guardian.co.uk/marketforces/story/0,,1965078,00.html

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