The Guardian: City awaits hard sell from Sorrell: “Shell gained 8.75p to 399.25p, excited by rumours of predatory interest from rival Total.” (ShellNews.net)
Neil Hume
Tuesday August 17, 2004
Sir Martin Sorrell had better have something positive to say about the outlook for the global advertising market when his group, WPP, files half-year figures on Friday. Otherwise, Morgan Stanley is going to have egg on its face.
Yesterday, WPP was one of the best performers in a firm FTSE 100 after the US investment bank, citing the recent poor performance of the company's shares, removed the stock from what is in effect its sell list.
WPP, the world's second-largest advertising and media services group, has been something of a dog over the past six months.
Its shares have fallen 21%, unsettled by the weakness of its US peers and worries that Sir Martin, a deal junkie, will launch a £700m offer for rival Grey Global.
On that front, Morgan Stanley analyst Patrick Wellington thinks it unlikely WPP will end up acquiring Grey. He also notes that WPP's stock market rating has slipped to a slight discount to its peers, which he reasons limits the downside if Friday's results should disappoint.
As for the figures, the City expects revenues to top £2bn for the first time. However, it will be Sir Martin's comments on the strength of the advertising recovery following one of the most severe downturns in living memory that will determine the direction of the share price.
WPP closed 18p higher at 489p.
In the wider market, it was a good day for leading shares, which finished sharply higher as the oil price came off the boil. This followed news from Venezuela - a leading supplier of oil to the US - that President Hugo Chavez had survived what amounted to a vote of no confidence.
The FTSE 100 settled 48.7 points higher at 4,350.2, with British Airways, probably the stock in the index that was most geared to the oil price, its top performer. BA shares rose 8.5p to 216.25p, while Shell gained 8.75p to 399.25p, excited by rumours of predatory interest from rival Total.
Elsewhere, theFTSE 250 rose 24.3 points to 5,881.6, but the FTSE Small Cap index eased 2.6 points to 2,428. Market turnover was again dismal, with fewer than 2bn shares changing hands. Dealers said the thin trading conditions had flattered the performance of the market - and the FTSE 100 in particular.
In the bond market, gilts ended lower, unsettled by the rally in the equities market. The benchmark 10-year gilt closed at 100.2, yielding 4.974%.
Mining stocks were among the day's best performers after Morgan Stanley forecast an annual shortfall in the coking coal market of at least 7m-12m tonnes over the next four years. BHP Billiton, the global leader in coking coal, gained 14.75p to 523.25p on that prediction, while Xstrata, another major player in the market, advanced 29p to 799p - an all-time high.
Elsewhere in the sector, Anglo-American added 47p to £12.44, a four-month high, after the gold price reclaimed the $400 an ounce level, thanks to a weakening dollar.
P&O, the ports and cross-Channel ferry group, was among the standout features in the FTSE 250 after UBS upgraded to buy. The Swiss broker believes P&O will shortly receive planning permission to build Britain's largest container port, at Grays, Essex.
Analyst Raymond Maguire estimates the site, called Shellhaven, could be worth between 17p and 64p a share, depending on the timing of the investment profile and the returns generated.
He also argues that Shellhaven will require about £700m of investment and the only way P&O will be able to fund that is accelerate its disposal programme.
Indeed, P&O last week put La Manga, its luxury Spanish sports resort, on the market with a £100m price tag.
Should P&O make further disposals, Mr Maguire believes a streamlined company would be a tempting takeover target for international shipping conglomerates, many of which, he notes, are sitting on huge cash piles thanks to booming shipping rates.
P&O ended 9.75p higher at 233p.
Lastminute.com, up 7p to 111.5p, was another strong performer after rival ebookers, 17.5p higher at 140p, said trading had stabilised since its recent shock profits warning.
Discount retailer Matalan improved 7p to 207.25p, excited by reports at the weekend that Stephen Sunnucks, the former chief executive of New Look, is being courted by venture capitalists to head a bid for the budget retailer.
Elsewhere, there was a buzz around Northumbrian Water Group as its shares closed at a record high after 10m units - five times the daily average -had changed hands.
However, analysts reckoned rumours of a bid approach from a private equity group or a European rival were likely to prove wide of the mark.
They attributed the strong performance of Northumbrian - which it should be noted is not out of line with the rest of the sector - to the recent price review conducted by industry regulator Ofwat. The review was greeted with a big sigh of relief in the City, which expected something much worse.
Among the smaller companies, Savills, the property adviser, rallied 5p to 361p after house broker ABN Amro said recent weakness had created an excellent buying opportunity.
Fears of a cooling in the housing market, which were compounded by comments from estate agents chain Countrywide last week, sparked a 22% fall in Savills' share price over the past three weeks.
ABN points out, however, that UK residential sales accounted for a fraction of Savills' profits last year and that its shares now trade on a price-earnings ratio of just 8.3. They also yield an attractive 4.5%.
Catalyst Media Group firmed 1p to 15.25p amid talk that it has the funding in place to buy a 20% stake in Satellite Information Services, which provides bookmakers with live TV pictures.
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