Bargain hunters help Shell rebound Bargain hunters helped Royal Dutch Shell rally on Friday even as the wider market flatlined. Shell B shares rebounded 1.4 per cent to £21.90 a day after weaker than expected results triggered their sharpest fall in two years. Brokers including Barclays encouraged the bottom fishing, with its analysts arguing that cost control and capital discipline should return once Ben van Beurden takes over as chief executive next year. "We continue to see Shell as the best investment option of the majors as we move into 2014," Barclays told clients. In the coming five years we expect to see the group generate more than enough cash flow to cover both capital expenditure and dividends. Shell had slid 5.2 per cent on Thursday after posting an unexpected one-third drop in quarterly profit, in part caused by a doubling of exploration costs. Investors had already accepted that management's target to deliver up to $200bn of cashflow in the 2012-15 period would be materially downgraded, said Barclays. However, it expected Mr van Beurden's first strategic update due in March to tilt the balance towards shareholder returns by cutting spending and setting out clear disposal targets. SocGen was more cautious. While $35bn of annual free cashflow should be enough for Shell to protect its dividend, there was little breathing space if the oil price dropped if a turnround of its lossmaking US business took longer than expected, the broker said. A directionless wider market left the FTSE 100 up 3.31 points at 6,734.74. For the week the index was up 0.2 per cent. Vodafone led Friday's blue-chip risers on another airing of the story that AT&T was working on a bid. AT&T executives were "laying the groundwork internally" for a potential takeover of Vodafone next year but had not yet entered formal negotiations, Bloomberg reported. Vodafone's core business was trading at 4.5 times next year's operating earnings against a sector valued at 5.5 times, which "implies that an AT&T approach is not priced in at all," said Deutche Bank. To pacify Vodafone shareholders a bid would have to be priced at about 6.5 times operating earnings, implying a current value of 281p per share, SocGen argued. The stock advanced 3.6 per cent to 232.5p, a record high. British Airways owner IAG rose 1.7 per cent to 353.9p ahead of October traffic data on Wednesday, followed by quarterly results two days later. Full-year expectations were likely to edge higher, analysts said, as IAG management will be able to reinstate earnings guidance that was withdrawn last month while the group sought shareholder approval for fleet orders. Smith & Nephew was up 0.9 per cent to 804.5p, with Investec Securities turning positive. "We think there are some green shoots for the group's hip and knee portfolio," said Investec. Although the orthopaedic market itself rebounded in the third quarter, we think this masks a stronger underlying performance from Smith & Nephew, which has faced a number of specific headwinds that may now begin to lessen. To us, the shares look fair value for the growth on offer, but we think there is some upside potential from another cash return that is not priced in. A profit warning sent Meggitt sliding 11.1 per cent to 509p, with the aerospace engineer blaming a delivery of faulty raw materials and delays in securing energy contracts. While the quality control issues were likely to be temporary, the update also showed weaker civil aerospace aftermarket growth, which had a longer-term drag on earnings, said JP Morgan Cazenove. Royal Bank of Scotland led the banks lower, down 7.5 per cent to 340p. Strategic measures including an accelerated disposal plan and the creation of an internal "bad" bank had been widely anticipated, meaning investors concentrated instead on an unexpected quarterly loss as well as the cost of retrenchment. Barclays slipped 2.8 per cent to 256.3p on news it had suspended six traders as part of its internal investigation into alleged rigging of the foreign exchange market.