The prospect of consolidation in the oil sector helped London equity markets reverse two days of losses.
Morgan Stanley said there could be a “wave of large-scale M&A activity” among leading European oil stocks.
“The industry is going through a period of structural change,” said Neil Perry, analyst. The logical outcome is a round of consolidation . . . on a similar scale to 1999-2001.”
Meanwhile, newswire comments attributed to a Shell executive suggested the oil company was again ready to make acquisitions.
Shell shares gained 3.2 per cent to 545p after it agreed a change in its ownership structure.
After the restructuring, which will bump Shell’s weighting in the FTSE 100 up from 3.9 to about 9 per cent, institutions might need to buy more Shell shares to bring their weighting in the stock up to the required level for tracker funds.
The day’s top gainer was another oil & gas producer, BG, up 4 per cent to 472p on hopes that it would be a beneficiary of any European consolidation.
Richard Rose, oil analyst at Oriel Securities, said BG “would make a nice fit” for Shell while adding it would be an expensive buy. BG has a market capitalisation of more than £16bn.
Mid-cap oil stock Soco International jumped 6 per cent to a record high of 605p on news of a successful well testing in Yemen.
Elsewhere, new hopes that O2 could be a target for telecoms consolidation breathed air into mobile group, up 2.2 per cent to 129p. This followed the €1.1bn purchase by KPN of fellow Dutch mobile company Telfort.
O2, which KPN tried to buy last year, is seen as a likely target in any European consolidation. Deutsche Telekom has been linked with a move.
The FTSE 100 ended 0.9 per cent higher, or 46.9 points, at 5,090.4 while the FTSE 250 gained 0.6 per cent, or 44 points, to 7,310.4. Volumes were strong at 3.2bn.
Kingfisher, owner of the B&Q DIY chain, gained 0.3 per cent to 244¾p amid talk that Wolseley, the plumbing group, could launch a bid. Wolseley, which this year lost out to Travis Perkins in the battle for DIY chain Wickes, added 0.9 per cent at £11.68.
The FTSE 100’s newest recruit, online poker group PartyGaming, was flat at 129p following its strong debut on Monday.
Exel, the logistics group seen as a potential takeover target, gained 2.3 per cent to 838½p after it reassured investors on current trading while recruitment group Hays gained 2.8 per cent to 129¼p after a positive trading statement.
Miners fared well. The day’s best performer was BHP Billiton, up 2.1 per cent at 719½p after Morgan Stanley upgraded its price target on the Anglo-Australian group from 800p to 820p.
Retail also had a good day after music and book group HMV posted higher annual profits and a rise in like-for-like sales.
It said trading, while “subdued”, had improved from the low of April and May. It shares ended 3.2 per cent higher at 236¾p.
Numis analyst Iain McDonald said he had concerns about the outlook for sales and slapped a “reduce” rating on the stock.
Meanwhile, Carpetright gained 11.1 per cent to 999p in spite of a fall in full-year profits and confirmation of a sharp decline in second-half sales. The stock was helped by short covering and relief that the picture was no worse following the substantial profit warning from Floors-2-Go on Friday.
Like most retail stocks, both HMV and Carpetright have been buoyed of late by takeover talk, with HMV seen as a possible target for private equity groups and Carpetright perennially linked with a management buy-out.
Among supermarkets, Somerfield slipped 0.4 per cent to 189¼p after United Co-operatives, one of several suitors for the company, withdrew its interest.
More than 6m shares were traded in the London-listed stock of Allied Irish Bank, up 1.8 per cent to €10.15. Dealers said the Shell restructuring and Telecom Italia’s acquisition of TIM had combined to create a vacancy in the Eurostoxx 50 and Allied Irish was favourite to fill it.
Of the leading fallers, a second profit warning in three months sent Computacenter shares tumbling 22 per cent to 181p. The IT hardware and services group conceded it did not expect trading conditions to pick up this year, prompting Cazenove to slash the stock to “underperform”.
Computacenter shares have fallen more than 50 per cent in 12 months.
Shiloh jumped 25.9 per cent to 129p after the healthcare services business received a 130p per share cash offer from Synergy Healthcare. The offer values Shiloh at £8.7m. Sebastien Jantet of Investec said a counterbid could not be ruled out as competitors were trying to build positions in the sterlisation market. Potential bidders could include Davis Service Group, up 1.4 per cent at 453p, or a number of private companies. Synergy’s update said trading was in-line with expectations and its shares rose 3.5 per cent to 447p.
Chime Communications slipped 6.1 per cent to 26¾p as the UK’s largest public relations business anounced plans to acquire the advertising company VCCP whose main client is 02. Chime will pay £14.5m initially, partly funded by a placing of 25.4m new shares at 26p per share, conducted by Numis Securities.
A profit warning dragged TripleArc 43.7 per cent lower to 10p. The print management company said weak trading meant underlying pre-tax profits for 2005 would be significantly below market expectations and less than last year’s £3.3m. Peter Houston has resigned as finance director and Richard Hodgson, formerly finance director of Iron Mountain Europe, will be appointed as chief financial officer.
Epic Group rose 19.5 per cent to 79½p as the online learning specialist said it was in preliminary discussions which might lead to a takeover offer. Media speculation suggested a US predator was circling and dealers said its £18.9m valuation still remained cheap as it has £10.5m in cash.
System C Healthcare closed at 54.5p after its first day of trading on Aim yesterday, a 0.9 per cent premium to its placing price of 54p per share. The software provider to the healthcare sector will receive £8.5m net after it raised a total of £27.3m via a placing conducted by Collins Stewart. The balance of the placing will go to original shareholders such as Barclays Ventures. The total market value of System C is expected to be around £47.7m after a second tranche of 11.1m shares is placed in the market today.
A contract win with Vimpelcom, the Russian mobile telecoms operator, helped Intec Telecom Systems, the telecommunications software provider rise 2 per cent to 65p.
White Nile firmed 3.9 per cent to 119p after the oil & gas exploration company raised £7m through a non-brokered private placing of 7m new shares at 100p per share.