Fears that Britain may leave the EU may be knocking the pound lower but shares are shrugging off theses worries as commodity prices support the market.
Oil continues its volatile way, up more than 2% at $33.72 in the wake of last week’s attempts by producers including Saudi Arabia and Russia to limit output.
Metal prices also moved higher, with copper hitting a two week high as the head of China’s securities regulator resigned and positive signs from the country’s steel industry. Mike van Dulken, head of research at Accendo Markets, said:
[Metal prices are] benefiting from bets that oversupply will begin to reduce as well as a return of risk-on appetite. There is also perhaps optimism that soft China Business sentiment will result in more stimulus from Beijing and that the nation’s new securities regulator will grease the wheels of the IPO market and get Chinese equities further from their recent lows, recovering lost ground not just this year, but since last summer.
So the FTSE 100, dominated as it is by global rather than domestic issues, is up 69.43 points at 6019.66. Tony Cross at Trustnet Direct said:
The pound has slumped as a result [of Brexit fears] and although this might be bad news for holiday markets, it should be good for exporters and will also serve to buoy London-listed equities in general as sterling denominated assets begin to look a little cheaper to overseas investors.
Anglo American is leading the way higher, up 31.35p at 468p as analysts at both Macquarie and Jefferies raised their price targets, albeit with underperform ratings. Jefferies said there were risks to Anglo’s share price after the recent rally and added:
A successful transformation for Anglo depends on a combination of asset sales and cost cutting. We are concerned that demand for higher cost assets - especially in bulk commodities - will be weak, and buyers will only be interested if assets will be sold at low valuations. Anglo is therefore likely to struggle to complete its planned $3-4bn of divestments in 2016 and $7bn plus of divestments in the longer term.
If management succeeds, the Anglo share price would likely have further upside, even after the recent rally. If we assume $2.5bn of core EBITDA at spot, an enterprise value/EBITDA multiple of 8 times (reasonable for world class mining assets at a very weak point in the cycle), and net debt of $6bn, Anglo’s equity value would be 746p a share. It really comes down to whether these aggressive restructuring targets are met. In the near-term, we think Anglo’s share price depends on whether management can convince investors these plans are credible. In the longer term, Anglo’s share price depends on whether these plans are actually achieved.
BHP Billiton is 42.9p better at 775.3p while Rio Tinto has risen 102.5p at £19.94.
But HSBC is the biggest faller, down 4% at 431.95p after its results.
Among the mid-caps Home Retail has jumped 18.9p to 172.5p after South Africa’s Steinhoff made a rival bid to Sainsbury’s, down 5.1p at 256p on fears it could become involved in an auction.
Bovis Homes is up 1.5p at 912p after its full year profits rose 20% to a record £160.1m. But it made some cautious comments on the outlook, and other housebuilders have slipped back, with Berkeley down 86p at £32.77 and Barratt Developments 8.5p lower at 576p.
