Market Report: Afren buoyed by hopes of African oil strikes

The market veered sharply lower last night, but Afren was broadly unchanged as traders bought in on hopes of upside gains.

The oil prospector closed at 98.95p, down a slight 0.2p, after Evolution said that, of all the exploration and production stocks under its scanner, Afren appeared to offer the best balance of risks against prospective rewards. The broker said that despite rallying strongly in recent weeks – Afren is up over 20 per cent since the beginning of July – the share price indicates a downside risk of just 3 per cent.

The combination of core and risked net asset values, on the other hand, bears a figure of 276p, indicating a significant upside to current levels. In terms of possible catalysts for a another move up, the broker highlighted the company's Ebok field in Nigeria, which is slated to come on-stream in the final quarter of this year and will provide leverage to the oil price, and the recent acquisition of Canada's Black Marlin Energy, which provides exposure to east Africa, a region which is fast becoming a "hotspot" for prospectors. Besides Evolution's support, Afren also received a boost from Citigroup, which reiterated its "buy" stance on the stock.

Overall, it was a volatile and ultimately negative day on the markets. London's indices were firm during the morning, but fell back after the latest US non-farm payrolls report, which showed that the world's largest economy lost 131,000 jobs over July, sparking worries about a slowdown in the pace of growth. The figures led to sharp losses on both the FTSE 100 and the FTSE 250. The market looked set to head deeper into the red when a round of bargain-hunting in the mining sector led to a reversal of losses. The strength was short-lived, however, as traders filed out in the final hour of business, leaving the FTSE 100 at 5,332.39, down 33.39 points, and the FTSE 250 at 10,089.79, down 76.34 points.

Antofagasta, though off the day's highs, was among the most resilient in the mining sector, ending 2p ahead 1,025p after Evolution revised its target for the stock to 885p from 750p. Xstrata and Rio Tinto, both of which were upgraded to "outperform" at Exane BNP Paribas, also managed a creditable performance, ending the session at 1,084p, up 1p, and 3,431p, up 1p, respectively. Kazakhmys fared even better, ending 5p stronger at 1,268p after Exane BNP Paribas revised its stance to "neutral" from "underperform".

Lonmin was the weakest of the blue chips, sliding by more than 5 per cent or 83p to 1,557p as analysts responded to the South African government's ban on sales of nickel, copper and other by-products of its platinum mining business. Panmure Gordon was among the brokers who weighed in, saying that, with Lonmin contesting the matter, the issue should eventually be resolved with limited impact on the business.

"However, the worst-case scenario, where Lonmin permanently loses the right to associated minerals, is very severe indeed and cannot be ruled out until the issue [is] legally resolved," the broker said, sticking to its "sell" stance and 1,100p target price for the stock. Evolution also repeated its "sell" view, saying that while it expected a resolution, the dispute "must further undermine confidence in management".

Elsewhere, Intercontinental Hotels fell back with the wider market, easing by 4p to 1,117p despite Citigroup raising its forecasts ahead of the hospitality group's results next week. "We expect commentary from management to reflect strengthening business demand and strong occupancy," the broker said, repeating its "buy" stance with a revised 1,500p target price, compared to 1,450p previously.

Further afield, the Lloyd's of London insurer Catlin was 4.6 per cent or 18p lower at 370p after posting its half-yearly results, reporting a fall in profits after being hit by claims related to the earthquake that struck Chile earlier this year. The company was also hit by claims relating to the Gulf of Mexico oil spill. In response, KBC Peel Hunt abandoned its "buy" recommendation, moving Catlin to "hold" on valuation grounds.

Property group Capital Shopping Centres was held back, falling by 4.8p to 335.1p despite some supportive comment from Deutsche Bank. Taking its cue from the recent half-yearly results, the broker upped the stock to "hold" from "sell", saying: "Management has now disclosed rent [and] sales ratios, showing the level of stress tenants are facing. The declining trend in this ratio does suggest tenants are not in any immediate danger, although we do note that smaller tenants are potentially being assisted by CSC where necessary."

Phoenix it was 5.2 per cent or 11.75p better off at 238.75p after Altium highlighted the read-across from Logica's results, which confirmed continued strength in outsourcing and an improving pipeline. "With regard to the UK, there was a slight decline in revenue, but the outlook has improved with growth in ... bidding opportunities," the broker said, repeating its "buy" view. "Phoenix, as a partner of Logica, continues to be well-placed to benefit from the general growth in the market for outsourcing." At the close, Logica was 6.7p higher at 116.1p.

FTSE 100 Risers

Inmarsat 741.5p (up 28.5p, 4 per cent)

Better-than-expected results; confirms $1.2bn order for a new satellite fleet.

African Barrick Gold 568p (up 21p, 3.8 per cent)

Tracks precious metals, which attract interest as the market loses its appetite for risk.

RSA Insurance 134.3p (up 0.8p, 0.6 per cent)

Upped to "buy" from "hold" at Jefferies; target price raised to 148p from 140p at Deutsche Bank.

FTSE 100 Fallers

Unilever 1,689p (down 47p, 2.7 per cent)

UBS revises its recommendation to "neutral", compared to "buy" previously.

Tullow Oil 1,263p (down 14p, 1.1 per cent)

Pressured as oil prices retreat in response to disappointing US jobless figures.

Cobham 221.8p (down 2.2p, 1 per cent)

UBS maintains its "neutral" stance, but lowers its target price to 235p from 240p.

FTSE 250 Risers

Ashtead 100p (up 4.55p, 4.8 per cent)

Boosted by bargain-hunting, and some vague takeover speculation near the close.

Carpetright 746.5p (up 18.5p, 2.5 per cent)

Gains ground as bargain hunters move into capitalise on the recent run of weakness.

Cookson 484.4p (up 9.7p, 2 per cent)

Target price raised to 675p at Deutsche Bank, and to 660p at Investec.

FTSE 250 Fallers

Connaught 15.5p (down 13.5p, 46.6 per cent)

Slides as investors move out after the company warns of a material loss this year.

Amlin 425.1p (down 7.6p, 1.8 per cent)

Unsettled by the read-across from sector peer Catlin, which posts lower interim profits.

ITV 52.15p (down 0.45p, 0.9 per cent)

UBS maintains "buy" recommendation, but scales back its target price to 67p from 77p.