Edison Investment Research

Fortuna LNG deal underlines the structurally higher costs of capital seen by E&Ps

We believe the poor record of investment returns for large oil companies over the last cycle (taken as a proxy for the industry) should have far reaching effects across the industry. As majors look to increase their below-WACC ROICs (seen consistently over the last decade), they will demand higher returns for the investment projects. This should mean a continued drive for lowering costs and increasing efficiencies for service companies and a more aggressive negotiation with companies looking to farm-down the projects for funding.

Majors - failure to make sufficient returns will raise costs of capital across the E&Ps

By Will Forbes

The total shareholder returns of the majors outperformed the NY industrial average since 2000-2016 buoyed by the Chinese supercycle and resulting oil prices. However, the total returns seen by investors have lagged badly in the last decade, as inefficient capital bases in a newer world of higher costs and moderating/falling oil prices dragged on returns.

Market Commentary - Housing, Infrastructure, Construction and Services - 24th November 2016

HSS Hire has reported its progress in the first nine months of the year today and the small timber merchant James Latham has issued its half year numbers. The headlines from the Autumn Statement are well covered in the press so no real need to cover those in any depth here. The impact of the much higher level of government borrowing in future interest rates is the key concern for the sector. Arguably it is factored into the share prices of the housebuilders but defining the right numbers to make that assessment is not possible.

Handset Industry – Oranges and lemons

We think Apple earns between 64%-68% of industry profits, not 91%.

Meitu – Crazy selfies

Very risky proposition leaves too little on the table.

Market Commentary - Housing, Infrastructure, Construction and Services - 23rd November 2016

After a deluge of news yesterday the only item of real interest today is the Brammer board’s recommendation of an offer for the business from private equity at 165p, a 69% premium on the closing price last night. The market showed few signs of mercy yesterday. It may that the newsflow just tipped over a few potential sellers and gave few if any additional arguments for buyers.

Earnings revisions: Gap widens between U.S. equities and earnings forecasts

Though the bullishness is palpable, U.S. equity markets are not being driven higher by 2017 earnings forecasts, which have declined during November. In the absence of upgrades, we would now question how far the slogan of “Make America Great Again” can push U.S. equities. In the UK, market indices appear better supported as earnings forecasts are still increasing, even as the stock market has lagged. In Europe, in euro terms both the market and estimates have remained stable over the last quarter.

Market Commentary - Housing, Infrastructure, Construction and Services - 22nd November 2016

So much news today we shall need to be brief. Compass, and Renew Holdings delivered finals to end September 2016, Severfield, Babcock and Homeserve their half year numbers to end September.

Facebook – The dunce pt. II.

Inability to automate bites Facebook again.

Market Commentary - Housing, Infrastructure, Construction and Services - 21st November 2016

Mitie provides the main newsThe substantive issues for investors are whether the company has the markets, money and people to achieve turnaround. Our sense is the Mitie can become a business with £2bn annual revenue growing at 3-5% a year and with operating margins of 4-5% in the mid term.  today. The key issue for Mitie is whether the announced measures announced this morning are large enough to “clear the decks” and create a stronger FM business.