Essar Energy rises after Goldman points to growth potential

By Bryce Elder and Neil Hume
Financial Times
Published: March 23 2011 08:53 | Last updated: March 23 2011 20:14

Essar Energy showed its biggest gain in eight months on Wednesday on the back of a recommendation from Goldman Sachs.

The Indian power group rallied 4.2 per cent to 468p, having fallen sharply this week after it pushed back plans to build two electricity plants. The delays and concerns about rising coal costs have led Essar to underperform its European sector by 30 per cent so far this year, which had discounted the risks, Goldman said.
Meanwhile, the Indian environment ministry will meet in the next few weeks to decide whether Essar can clear forests and develop two coal sites.

“This could be a materially positive catalyst for the company, which is not reflected in the price,” Goldman said. “Furthermore, the company is organising a site visit to its power and refining assets in India next week, which we believe could refocus market attention on the company’s growth story.”

Goldman added Essar to its “conviction buy” list with a 610p price target. Regulatory approval of both coal projects would raise the valuation by a further 16 per cent, it said.
The wider market ended higher after a choppy day, with the FTSE 100 rising 0.6 per cent, or 33.17 points, to 5,795.88.

Miners provided the main source of support. ENRC, which delivered in-line earnings, rose 3.5 per cent to 929½p and Kazakhmys gained 4.5 per cent to £14.31.

Ferrexpo was up 4.6 per cent to 421½p after the Ukrainian iron ore group beat 2012 forecasts and retained production guidance.

Among the fallers, ITV dropped 5.2 per cent to 80¼p after Nomura analysts said the UK television advertising market appeared to be cooling. “If the media buyer information is correct, this could lead to a short-term loss of momentum for advertising for ITV,” it said.

J Sainsbury lost 5.4 per cent to 335¼p after missing forecasts with its weakest quarterly sales in six years.

Wm Morrison lost 0.7 per cent to 274½p in response, and Tesco was little changed at 380p. “While estimate revisions are not substantial, Sainsbury still does not yet look low-rated compared to UK peers,” said Credit Suisse.

Marks and Spencer rose 1.5 per cent to 345½p as strong results from Inditex, owner of Zara, helped support clothes retailers.

North Sea explorers such as Enquest dropped after the chancellor unexpectedly announced an increase in the overall tax rate on upstream profits, from 50 per cent to 62 per cent.

“Premier Oil and BG Group are the most exposed, with 40 per cent and 24 per cent of production respectively coming from the UK North sea,” said Barclays Capital.

“On a provisional basis we estimate the impact on consensus EPS for Premier Oil will be 10 per cent and for BG Group 4 per cent.”

Enquest tumbled 12.5 per cent to 137½p. Premier fell 4 per cent to £19.11 and BG lost 2 per cent to £14.75.

Centrica, which in 2009 bought North Sea producer Venture Production, retreated 2.6 per cent to 317½p. Analysts put the cost to Centrica’s earnings at about 1.2p per share.

Coal-fired power station owner Drax Group slipped 4.3 per cent to 322¼p in response to the Budget measure to set a price floor for carbon credits.

Housebuilders were up on the back of the Budget’s measures aimed at helping first-time buyers and accelerating land sales by local authorities.

Redrow took on 3.3 per cent to 129¾p, Taylor Wimpey was up 2.5 per cent to 42p and Barratt Developments added 2.7 per cent to 109¼p.

Mitchells & Butlers was up 0.6 per cent to 303¾p after Elpida, the investment vehicle of JP McManus and John Magnier, raised its stake in the pubs group to 20.14 per cent with the purchase of 4.3m shares.

Punch Taverns lost 7.1 per cent to 70p as analysts took a cautious view of demerger plans announced on Tuesday. Espirito Santo downgraded the group to “hold”, while Morgan Stanley, BarCap and Deutsche Bank all repeated “sell” advice.

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