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FTSE 100 edges higher but BP and Shell slip on oil glut fears

Discussion in 'Market News' started by Lily, Sep 13, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Oil companies hit by new forecasts from International Energy Agency

    After an initial attempt to recover from recent losses, leading shares are struggling to cling onto the day’s gains.

    Oil shares are among the biggest fallers after crude prices slid further in the wake of a downbeat report from the International Energy Agency. The agency said the oil market would be oversupplied until at least the first six months of 2017, given a sharp slowdown in demand and rising stocks. A month ago it predicted suppy and demand would be broadly in balance for the rest of the year, and inventories would fall sharply.

    The IEA has joined OPEC in pouring more cold water on the oil price this morning. After OPEC flipped its prediction of dwindling non-OPEC supply in 2017, instead warning that it was set to rise due to a major new oilfield in Kazakhstan coming online, the IEA has issued a stark warning that the pickup in demand seen in the first half of the year has completely evaporated. It has cut its demand forecasts for the second half and the whole of 2017 and is now predicting the glut will remain in the global market for the whole of next year. Oil prices are down this morning, although the real capitulation could come towards the end of the month if OPEC and Russia fail to agree a supply freeze

    Despite the precipitous, full year IMS triggered ABF sell-off, we remain concerned that the Primark investment debate will now revolve around more normalised valuation criteria. With a third successive year of Primark margin falls now expected for 16/17, we value the division on 23 times PE, and see double-digit downside to the stock.

    We do not see the ‘scenario weighted’ risk/reward as attractive given we would expect Intu to materially underperform in a UK downturn. We note that Intu has high EPS sensitivity to like for like growth and also capital values. Given 97% of asset value is UK shopping centres and given an loan-to-value off 44%, we see high sensitivity to a down-cycle should it occur. We forecast a c.20% capital value decline driving a c.35% decline in net asset value. With the stock trading at a 15% premium to our 2018 NAV forecast, we downgrade to sell.

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