Market Report: Soco swells as bulls bet on exploration success

Soco International surged by as much as 9.7 per cent last night as traders piled in on hopes of a doubling of the oil prospector's share price.

The stock touched a session high of 1,775p, up 157p, after Goldman Sachs said exploration success in Vietnam or reserve upgrades via appraisals of the company's assets could prompt a re-rating, such that Soco might almost double this year. Beyond Vietnam, there is the promise of a potentially high impact campaign in the Democratic Republic of Congo later this year, "success at which could result in a nearly 80 per cent increase" in the broker's 2,819p target price.

Goldman also nudged investors to take another look at the wider oil & gas exploration and production (E&P) space, which it argued was well placed to draw steam from higher oil prices. The broker said it foresaw prices of $110 per barrel in 2011 as Brazil, Russia, India and China consume higher quantities of the black stuff and supply from beyond the OECD countries steps down a gear.

"We backtested [the] performance of the E&P subsector in different oil price environments and believe that it is best positioned for the next leg of oil price increases," Goldman explained, repeating its "conviction buy" view on Dana Petroleum, which was 16p firmer at 1,125p. Soco and Tullow Oil, both of which were upped to "buy" from "neutral" by the broker, closed at 1,761p, up 8.8 per cent or 143p, and at 1,142p, up 5 per cent or 54p, respectively. The latter also received a boost from a well-received interim management statement.

Overall, the benchmark FTSE 100 index was 49.2 points higher at 5,383.45, while the mid-cap FTSE 250 index rose by 210 points to 10,186.92 against the backdrop of David Cameron's first day as Prime Minister, with Conservatives entering into coalition with the Liberal Democrats.

"From the markets' context, if the commitment to a five-year coalition is watertight, then it would be positive," Alan Clarke, UK economist at the French bank BNP Paribas, said in an early note to clients. Elsewhere, there were no ugly surprises in the Bank of England's Inflation Report, with traders relieved at signals that interest rates were likely to remain low for some time to come. The market also welcomed the news from Spain, where the government moved to tackle its budget deficit by announcing sharp spending cuts to reform its finances.

Over in the mining sector, the gold producer Randgold Resources continued to rise, adding another 195p to 6,065p – taking the gains since the beginning of May to more than 8 per cent – as investors sought to up their exposure to the precious metal. Though calmer overall, an undercurrent of nervousness was evident as gold prices, which tend to strengthen in response to worries about the economy, continued to make gains.

Further confirmation of the appetite for safe-haven investments was forthcoming from the Swiss refinery Argor-Heraeus, whose director of precious metals services said the demand for minted gold products and small bars had soared tenfold since the beginning of the year.

In the wider mining sector, firm copper prices underpinned gains in the likes of Kazakhmys, which was 23p higher at 1,293p, and Antofagasta, which rose by 12p to 945.5p. Rio Tinto was 3.5p behind at 3,292p as the chief executive, Tom Albanese, made his first public comments on Australia's planned 40 per cent tax on mining profits. "Of course, for Rio Tinto we will continue to invest in Australia, but on different terms and under different risks," he said at a conference.

Banking stocks were mixed as the market awaited clarity on the new government's regulatory plans. Royal Bank of Scotland was the weakest of the lot, falling to 48.4p, down 1.6p, while Lloyds ended 0.79p lower at 59.51p. HSBC was 5.3p firmer at 666.7p, whereas Standard Chartered was broadly unchanged at 1,703p, up 1p, amid speculation that it may be mulling the acquisition of a majority stake in South Africa's Nedbank, which is around 54 per cent owned by Old Mutual, the FTSE 100-listed insurance group which closed 4.6p higher at 119p.

Further afield, Rentokil Initial was 3.8p stronger at 126.7p after Panmure Gordon said a sell-off in the aftermath of the support services group's first-quarter update had been "overdone". "Despite the undoubted political and economic uncertainty, we continue to believe that Rentokil remains an attractive self-help story, and would envisage upgrades [to estimates] during the second half of the year as the benefits of cost savings come through," the broker said, revising its view to "buy" from "hold".

Also on the upside, the directories group Yell was 2p higher at 50p as UBS highlighted the read-across from recent economic data, with an index of confidence among small and medium-sized businesses in the US showing small improvements in sentiment. "The trends highlighted by the... data are generally encouraging, are supportive of comments from Yell and peers that sentiment is improving, even if this is not yet being fully shown in revenues given the lag effect," the broker said, reiterating its "buy" view on the stock.