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The Independent: Market Report: Prospect of bumper profits lifts the oil giants

By Andrew Dewson
Published: 31 January 2006
It is arguably the biggest week for results of the year so far and the market spent most of yesterday placing bets on who the winners and losers are likely to be. And it doesn't take a post-graduate finance degree to work out that Royal Dutch Shell is likely to be a big winner.
All the oil majors are likely to report bumper profits this year, with demand for oil and oil-related products showing no sign of abating, just as the price of oil shows no sign of a meaningful fall. For most of the last quarter, oil has traded close to $70 a barrel – not a bad price when most integrated oil majors are geared up to make money even if it trades at $10 per barrel.
On Thursday Shell reports its first set of full-year figures since the company abandoned its dual listing structure, and analysts are expecting the largest corporate profits in UK history – about £13bn for 2005.
As a result shares in Shell rose 42p to close at 2,002p, a rise of 2.1 per cent. That may not sound like a big rise until you consider that a 42p rise equates to an increase of £1.16bn to Shell's market value. It also announced that it had bought back 425,000 shares for cancellation. Shell's rival BP performed even better, rising 16.5p to close at 682p. It is due to report results on 8 February.
The oil analyst Jason Kenney, at the Dutch bank ING, is one of the few to suggest selling Shell. In a note to clients he said: “We believe this is as good as it gets for most of the pan-European oil stocks. We reiterate our neutral stance on the oil sector and significantly we downgrade Shell from 'hold' to 'sell'.”
The heavyweight US broker Merrill Lynch also thinks there is better value in the sector than Shell can offer, downgrading its stance on the oil giant's shares to “neutral”.
The stock market cannot seem to get enough of mining stocks, and once again a slew of miners were bid higher in anticipation of good results from Rio Tinto tomorrow. Buyers pushed its price to another all-time high, closing up 20p, 0.7 per cent, at 2,953p. The company dragged most of its peers along with it, with Antofagasta up 28p to 2,080p and BHP Billiton up 8p to 1,060p. ButAnglo American bucked the trend, falling 22p to 2,165p.
Elsewhere among the blue chips, the sugar company Tate & Lyle fell again after a “sell” note was published by Merrill Lynch last week. The stock is expected to drop out of the FTSE 100 at the next meeting of the indices committee and tracker funds have been selling the stock. It fell 11p to close at 562.5p, a fall of 1.9 per cent.
Shares in London Stock Exchange were once again bid higher after a couple of days of profit-taking, following talk of a bid from the New York Stock Exchange. Some traders said a 900p bid could be around the corner, leaving Australia's Macquarie Bank offer of 580p looking dead in the water. The shares closed at another all-time high of 731.5p, up 24.5p or 3.5 per cent.
Internet-based gambling stocks were again in focus, all suffering a bad day as traders decided that more profit-taking was in line after some strong gains last week. PartyGaming, the largest online gambling stock, which reported strong numbers on Friday, fell 8.25p, or 5.85 per cent, to 132.75p, the largest faller in the FTSE 100. Its rival 888 Holdings fell 11p to close at 209p while Sportingbet fell by 20p to end the day at 419.5p.
Surfcontrol, the internet security provider, is due to report its half-year numbers today. Some traders are expecting a strong set of results, which sent the shares to 577.5p, 8p higher, on relatively light volume, but the broker Shore Capital advised its clients to sell the stock before the results. In a note to clients it said: “Given the lack of revised guidance we do not see any near-term catalyst for a rise in the share price. Surfcontrol has been left outside the recent sector consolidation and we now judge its sales ecosystem to be weak.” Analysts are also expecting a new competitor on the block, one with enough clout to give Surfcontrol and all its rivals a major headache – Microsoft.
Bespak, the biotechnology delivery devices company, has had a good couple of days on the market and was buoyed by news that the FDA has approved Pfizer's Exubera, an insulin inhaler device for which Bespak has one of two global manufacturing contracts. The EU gave its approval on Friday.
The shares rose another 8p to close at 644.5p. However, the broker Bridgewell Securities advised clients to sell into strength, warning that growth in Exubera will take time and that the recent rise in Bespak's share price gives it a 30 per cent premium over its rivals.
Among the small caps African Copper rose 9.5p to close at 92p after it announced that copper has been found at its Thakadu-Makala site in Botswana.

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