Tullow reverses on mixed legal signals

An intraday reversal for Tullow Oil left traders out of pocket on Monday.

Tullow shares opened as much as 9 per cent higher after the International Tribunal for the Law of the Sea rejected a request from the Ivory Coast to cease work on the group's flagship TEN project, awaiting the final resolution of a border dispute with Ghana due in 2017.

But an interim ban on new exploration will cause problems for Tullow if the ruling is delayed and could hinder its chances of attracting a development partner, said analysts.

The shares erased gains to close 1.8 per cent lower at 410.3p.

Macquarie downgraded Tullow to "underperform", saying: "To us, Tullow looks expensive and we believe the shares carry a significant M&A premium at current levels.

"Now that this positive catalyst is out of the way, we would look to sell the shares - value creation opportunities over the next 12 months appear relatively limited (versus the Tullow of the past) and we do not believe the M&A premium is justified."

Bid hopes have helped lift Tullow by 44 per cent since early April. Short interest has risen in tandem with shares on loan to short sellers just below the nine-year high at 5.7 per cent of Tullow's free float, Markit data show.

Banks buoyed the wider market and lifted the FTSE 100 to a record high, up 33.28 points, or 0.5 per cent, to 7,103.98.

Restructuring hopes meant Standard Chartered was up 4.3 per cent to £11.16 a day ahead of results while HSBC took on 3.1 per cent to 649.3p.

Reports that HSBC may spin off its UK retail banking operations are likely to come to nothing, given the complexities of a split, said Goldman Sachs.

However, it does suggest HSBC's strategic review will be wide-ranging enough to tackle underperforming units in Brazil, Mexico, Turkey and the US, Goldman added.

GlaxoSmithKline was up 1.8 per cent to £15.62 on a recap of speculation that Pfizer might be interested in a bid.

Supergroup, the fashion retailer, climbed 4.9 per cent to 991p after RBC raised its target price to £11.50.

A more consistent performance under new management should justify a higher enterprise valuation than 7 times 2016 underlying earnings, against a UK retail sector average of 9 times, it said.

RBC also upgraded Sports Direct to "sector perform", helping to lift the shares 2 per cent to 625.5p.

Improving international and online sales offset the strong dollar's effect on sourcing costs, though the latter has yet to be factored in by the consensus, said the broker.

Sports Direct's staff bonus scheme presents another risk, said RBC, which forecast a £56m shortfall next financial year against management's ebitda (earnings before interest, taxes, depreciation and amortisation) target.

"To achieve the target, we think Sports Direct would have to buy a very profitable company or adjust its targets for organic growth, which could be 4-5 per cent dilutive to the 2019 share count," it said.

A profit warning left Sprue Aegis 12.4 per cent lower at 300p. The smoke alarm maker blamed sterling's strength and the possible relocation of a Chinese supplier to make way for a railway line.

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