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The Times: Shell benefits as FTSE 100 stages welcome rebound

June 29, 2007
Large caps
Bryce Elder

Shareholder activism was the theme of the day as the FTSE 100 index registered its first serious rebound in eight sessions.

Shell was among the beneficiaries, climbing 52p to £20.60 after Morgan Stanley argued that the oil giant’s discount left it undervalued by about £60 billion. “There is a massive gap between the market value and the underlying value of the company,” it told clients. “There is a blue sky upside case of £32.10 per share.”

While the broker saw this anomaly persisting unless management take radical action, it was the valuation gap that left Shell looking vulnerable. It told clients: “Taking over an oil major might be a bite too far, but taking 10 per cent of the company and then applying relentless pressure on the board is another matter. There are plenty of groups that could invest enough to force change on a major oil company board.”

Elsewhere among the gainers, Vodafone put on 2.4p to 166.2p to clock up its fourth straight advance. And for the third day this week, turnover was double the average. Traders were reluctant to pin the demand on talk that Vodafone could win exclusive European rights to sell Apple’s iPhone.

Suspicions have been raised after an order in excess of 1 billion shares, about 1.9 per cent of the company, was apparently cancelled at the last minute earlier this week. Coming at a time when shareholders are lobbying management to spin off its American joint venture, the activity has stoked speculation that it is being targeted by another activist.

Stake-building talk also helped Smiths Group, which put on 19p to £11.71 on suggestions that it had caught the attention of Samuel Heyman, the veteran US corporate raider. Smiths has been widely rumoured to be looking at splitting its medical and engineering businesses after the sale of its aerospace unit this year.

Cadbury Schweppes rose 15½p to 676p after Nelson Peltz had lifted his stake to 3.47 per cent from 2.98 per cent in March.

Wm Morrison put on 4½p to 300½p. Morgan Stanley took the grocer off its “underweight” list after the close of trading, saying that the shares were undervaluing the potential for major change such as a leveraged buyout or a property spinoff. The broker also saw scope for Morrison to buy back about £2.5 billion of stock, worth about 30p apiece.

Similar themes also featured on the loserboard. ICI slid 5p to 613p on reports that the hedge fund Atticus has built a small stake in Akzo Nobel and was lobbying for the Dutch chemicals group not to sweeten its rejected 600p offer.

In the wider market, the FTSE 100 index firmed 43.7 to 6,571.3 to rally off a two-week low. Experian led the way, up 20½p at 626½p on a combination of rumours about buyout fund interest and positive broker comment following its recent Brazilian acquisition.

Research from UBS upgrading coal price forecasts helped to support BHP Billiton, up 41p at £13.86, and Rio Tinto, ahead 91p at £37.81.

Diageo was the sharpest blue-chip faller, down 25p to £10.40 after an uninspiring trading update from the Guinness and Smirnoff maker. Analysts said there was disappointment that improving sales had not been carried through to the profit line, and worried about management’s downbeat guidance about the US market.

Among the mid-caps, Wood Group rose 17¼p to 337¼p as speculation refused to die that the oil services group is a takeover target. Dealers have mooted that the engineer Amec, up 32p at 594p, may be interested in a merger with its peer.

Fears of weak high street trading weighed on Sports Direct, down slid 4p to a low of 183½p. Smith & Nephew drifted 3p to 615½p as news of a director’s share sale dampened takeover hopes. Separately, Blue Oar Securities started coverage with a “sell” rating, arguing that the medical devices maker was too expensive to be bid for by private equity.

New York: Stocks finished flat after the Federal Reserve offered a cautious reading on inflation. The Dow Jones industrial average closed down 5.40 points to 13422.30.

http://business.timesonline.co.uk/tol/business/markets/article2003207.ece

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