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Market Report: Soco rises as brokers say it is ripe for a takeover

Toby Green
Wednesday 10 November 2010 20:00 EST
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A large target was painted on the back of Soco International last night, as brokers talked up the miner's suitability for a takeover attempt.

The company saw its price soar 16.6p to 340.5p after JPMorgan Cazenove described it as "one of the more attractive M&A [mergers and acquisitions] candidates in the European E&P [exploration and production] space".

Jessica Saadat, an analyst for the broker, said the company could attract a takeover bid of between 400p and 500p a share, thanks to its "focused portfolio [essentially Vietnam], rising production profile, attractive valuation and materiality".

Ms Saadat, who upgraded her advice on Soco to "overweight", added that potential suitors could include companies from China, India or Japan, although she said that the most likely buyer would be a Korean company.

Al Stanton, an analyst from RBC Capital Markets, agreed, pointing out that Soco's Vietnamese unit "would make a neat bolt-on acquisition for a large company".

"You've got a management team that is not wedded to any of its assets, and they would say that everything is for sale at the right price," he said. "I suspect in due course they will buff up their Vietnamese portfolio, put a big bow on it and sell it." He suggested a potential price of "well in excess of 400p a share."

Overall, the FTSE 100 lost 58.25 points to 5,816.94, as the blue-chip index was anchored down by many of the major miners, who dropped after strong performances earlier in the week prompted by a rise in commodities.

Lonmin was at the bottom of the pile, 88p worse off on 1,806p, while Randgold Resources also suffered, losing 105p to close at 6,160p. On Tuesday it had stormed ahead of the pack, but yesterday brokers had mixed feelings, with Evolution Securities keeping it as a "sell" as Galvan called it "a no brainer ongoing buy".

The saga of Rolls-Royce continued, as Singapore Airlines announced that it was going to replace the company's engines on three of its A380 planes, the same model as the Qantas aircraft which suffered an engine failure last week. Singapore Airlines made the decision, which it said was precautionary, after it discovered oil stains on the engine – a different problem, according to the airline, from that which caused the Qantas engine failure.

News that a test flight of a Boeing 787 with Rolls-Royce engines had to make an emergency landing also hit the company, though Boeing said it was not an engine fault. Thanks to the bad press, the engineering giant's share price slipped down 18.5p to 588p.

Scottish & Southern Energy's first-half results managed to lift it to the top of the blue-chip index, as it put on 42p to 1,160p. The energy company beat forecasts and confirmed that it was still planning to increase dividends for the full year. It also said that it hopes its first nuclear power plant will be ready to begin operating in 2023.

The defence group BAE Systems got the thumbs up from Investec Securities, as the broker described the company as "the most global of the defence majors" and praised it for "playing a clever political game through the strategic defence and security review". Investec reiterated its "buy" advice after an investor day, and said BAE had opportunities in a number of countries. The company closed the session on 359.4p, a rise of 10.9p.

There was talk yesterday that GlaxoSmithKline may be targeting Actelion, a biotech firm based in Switzerland which saw its price rise on the Swiss exchange in the morning before settling later in the day. The markets in this country seemed rather non-committal, and GSK put on a small increase of 2.5p to 1,238p.

On the FTSE 250, Fenner, which makes industrial conveyor belts, managed to reach its highest price on the market for three years after releasing its full-year results.

With increased demand in the second-half prompting a rise in profits, coupled with the naming of Nick Hobson as its new CEO, KBC Peel Hunt upgraded its shares to a "buy", and the company put on 12.5p to 281.6p.

Less successful was Aveva, which dropped 66p to 1,454p even as it revealed a 12 per cent rise in profits in the first half. The software company said that growth in emerging markets had given it a boost, but that it continues to perform poorly in Europe.

On the AIM, there was a rise of more than 50 per cent for Triple Plate Junction after the gold miner released a statement saying it had rejected a 4p-a-share offer from Newmont. The company added that it was planning a placement of 100 million shares with to raise £2.5m "to advance the company's joint ventures and examine new exploration opportunities in Papua New Guinea, Vietnam and other South East Asian countries". The company closed at 4.02p, an increase of 1.48p.

Also up was Silence Therapeutics, which added 1.31p to 9.85p. It said that research in the Clinical Cancer Research scientific journal had found that one of its drugs can stop breast cancer spreading to the lungs.

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