A double boost from Goldman Sachs helped shares in the UK’s biggest power station jump by 10pc in intraday trade.
The investment bank removed Drax from its “sell list”, and hiked its rating by two notches to “buy”, citing its risk-reward ratio as skewed to the upside following a period of “material underperformance”.
So far this year, the mid-cap stock has halved in value, due to declining gas and power prices in the UK. But analysts decided to lift its target price by 8pc to 265p to reflect lower coal price assumptions.
Goldman Sachs also cited positive read-across from the European Commission, which granted approval for rival RWE to receive government support to convert burning coal to wood pellets earlier this month.
Analysts also cited valuation upside from potential merger and acquisition activity as a reason for the raised rating, which came one day after 196 countries signed the first climate change deal in 20 years in Paris.
However, despite making significant gains in early trade, the FTSE 250 stock ran out of steam before close of trading, dragged lower by the waning oil price. The stock finished 2.2p, or 1pc down, at 209.9p.
Drax one-day share price graph (Source: Bloomberg)
The oil price was the main culprit for the FTSE 100’s dismal performance. Brent crude slumped to levels last seen in 2008 amid concerns the global oil glut could worsen.
Mike van Dulken, of Accendo Markets, said: “Fear about the spill-over from a potential Federal Reserve interest rate rise this week is keeping the lid on bullishness.”
Amid a weakened oil price and renewed uncertainty about the Chinese yuan, Mr van Dulken thinks the climate “could serve to spook the Federal Reserve for the second time this year”.
Yesterday marked another wildly unpredictable trading session with the blue chip index swinging to highs of 6,009 (up 0.96pc) before closing the day at a three-year low of 5,874.06 – down 78.72 points, or 1.32pc.
Oil and gas stocks also fell into the red, with BP 2.6pc lower at 329.3p. Meanwhile, Royal Dutch Shell B shares were boosted after it cleared its final regulatory hurdle, from the Chinese Ministry of Commerce, to merge with BG Group. The Anglo Dutch oil giant also said it would slash a further 2,800 jobs upon the completion of the takeover.
Joshua Mahony, of IG, said the tie-up between BG and Shell was beginning to look “less rosy”, as shareholders may get cold feet on the deal if crude prices continue to tumble. Royal Dutch Shell B Shares and BG Group closed down by 2.2pc and 0.7pc, respectively.
The mining sector was also hurt as the price of copper slumped. Glencore fell 6.3pc to 80p, Anglo American was 4.2pc lower at 280.8p, Antofagasta lost 3.9pc to close at 412.3p and BHP Billiton slipped 3.6pc to 669.3p.
Elsewhere, South African-exposed stocks staged a partial recovery, after a third finance minister was appointed in five days. In a surprising U-turn, President Jacob Zuma named Pravin Gordhan as finance minister on Sunday evening, days after sacking Nhlanhla Nene and replacing him with a relatively unknown member of parliament, David van Rooyen. The rand plunged to a record low in the wake of the dismissal and an aggressive sell-off of banking stocks followed.
Shares in Anglo African financial services group Old Mutual plummeted by almost 22pc in just two days. However, Sunday’s announcement helped shares in Old Mutual bounce back – up 1.3pc to 157.8p and South African bank Investec also jumped 3.2pc to 432.2p.
In the wake of a challenging macroeconomic environment and a deteriorating political situation, analysts at Barclays said they expect questions to remain over “the whole saga”.
- Questor share tip: Sell Old Mutual as South Africa feels the pain
Meanwhile, Pearson’s woes intensified after a report in The Daily Telegraph revealed a number of British universities had stopped buying its teaching materials. The education giant was also rocked by another profit warning in the sector from Tribal.
Neil Campling, of Aviate Global, said there were now 15 associated warnings or cautious statements in the sector and, pointing to college budgets, structural risks, and regulatory change, Mr Campling cautioned: “The headwinds are huge”. Shares in Pearson fell 19p, or 2.7pc, to 695p, while Tribal plunged 49.4pc to 27.5p.
Supermarket chain Morrisons was among the 12 risers on the FTSE 100 after it announced Rooney Anand would join the board as a senior independent director in January. Mr Anand is currently the chief executive of Greene King, a position he’s held for ten years. Shares rose 1.2p to 140.2p as traders welcomed the latest addition to the group.
In the run up to the Christmas, the City still found some time to indulge in some bid gossip. Sky jumped 1.2pc to £10.69 amid chatter Fox and Time Warner were both interested in the group.
Mid-cap stock KCOM touched a 14-year intraday high after it announced the sale of its national network to CityFibre for £90m. Andrew Darley, of finnCap, said the sale freed up KCOM’s balance sheet for greater flexibility to “comfortably accommodate the commitments of the pension and dividend”. The FTSE 250 stock ended the day at 106.3p – a rise of 3.7pc, while CityFibre’s shares slumped 12.8pc to 58p.
Finally, Aim-listed RedT Energy ended the day flat despite announcing two contract wins for its energy storage systems.
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