Punters are told to hold their fire on Tullow Oil as it looks set to gush

Rosamund Urwin
22 Sep 2009

Don't pocket profits in Tullow Oil yet: the shares could double in price.

That's the opinion of Morgan Stanley's analysts who today said that the buy case for the oil explorer has become more compelling thanks to tightening energy markets and the rolling out of its drilling campaign.

They also reckon that Tullow's discovery of oil at the Venus well off Sierra Leone last week has reduced the risks from its drilling operations.

Morgan Stanley has jacked up its price target for the shares to 1500p, but has upped its bull case to above £20, resting upon some assumptions about its operations in west Africa.

The broker optimism sent Tullow's shares to the top of the Footsie winners list, surging 31p to 1189p.

The gods of black gold have been kind to Tullow in recent months, with a number of big finds.

Rumour was that this had attracted the attention of Italy's ENI, with traders talking of a £20 price tag.

But ENI is now believed to have walked away, thinking a bid would be too expensive. Tullow's jump and a strong performance from the miners pushed shares in London up in early trading.

The benchmark FTSE 100 rose 29.91 points to 5164.27.

Lonmin added 49p to 1748p, Mexican silver miner Fresnillo gained 21½p to 775p and Rio Tinto was 64p stronger at 2708p.

Trinity Mirror was among the mid-tier losers, dropping 3p to 157p after Royal Bank of Scotland advised dumping the shares. The bank warns that a recovery may be more muted than expected given fears for the regional newspaper industry, and declines in circulation at the Mirror. But it has upped its price target to £1.30, thanks to a lower pension deficit estimate.

Meanwhile, Next has found a fan in Morgan Stanley, which today gave 10 reasons why it likes the clothing retailer. Upping the price target for the shares to 2100p, it reckons that its retail format offers growth, applauds its strong balance sheet and that it has no need for refinancing until 2013. It believes Next looks cheap in comparison with the rest of the sector. Its shares responded with a rise of 7p to 1869p.

Carnival, the cruise line operator, jumped 54p to 2114p ahead of its results released later today. Although it has faced swine flu and the recession, it has worked hard to cut costs and analysts reckon it has pulled in the holidaymakers thanks to offering big discounts. Bank of America Merrill Lynch added it to its Europe 1 buy list.

Falling commodity prices took some of the steam out of Wall Street overnight, with share prices in retreat after hitting 11-month highs last week. News of Dell's £2.4 billion acquisition of technology services company Perot Systems failed to bolster sentiment. The Dow ended a nervy session off its lows for the day, but was still down 41.34 points at 9778.86.

Investors focused their attention on commodity prices as oil dropped back below $70 a barrel amid forecasts lack of demand will see the price fall as low as $52. Copper and gold also came under selling pressure. Energy and raw-materials suppliers dragged the rest of the market lower. ExxonMobil was down 1.3% at $69.08 but Petrohawk Energy gained almost 2% to $24.06 after agreeing to sell its Permian basin properties for $376 million (£231 million). Delta Petroleum fell 42% to $2.33 after failing to find oil in the Columbia River Basin.

Trading in the Far East remained subdued, with Tokyo closed for a public holiday. Other markets made a slow return to business after extended weekend breaks.

Hong Kong shares gained ground with the help of bargain-hunting while the mainland Chinese market remained weighed down by concerns over the supply of forthcoming flotations. Airline stocks and oil refiners rose on the fall in crude prices but gains were shaved when oil began firming again.

Cathay Pacific jumped as much as 3.5% after the oil-price fall, but the gain was later pared back to 2.7% at HK$12.88. Parent Swire Pacific rose 1.4% to HK$92.15. Sinopec also benefited from the fall in crude although the oil refiner said earlier that demand for industrial fuels remained depressed in China. The stock hit a high of HK$6.90, up 1.62%, before shaving the gain to 0.59% at HK$6.82.

The Hang Seng index moved to reverse yesterday's late sell-off with a rise of 74.76 points to 21,547.61.