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Investors look beyond the obvious for oil-price winners
[FRANKFURT] The slump in oil prices to their lowest since 2009 will bring a multibillion-euro boost to European businesses, but the benefits are being distributed in a patchy fashion and in some surprising places.
While the oil industry has been left licking its wounds after Brent crude's 50 per cent plunge to about US$50 a barrel over the past six months, fund managers and analysts have been turning their attention to the likely beneficiaries.
Big chemicals, household goods and some logistics companies have been identified as potential winners. But in the search for growth, investors are also on the lookout for niche players within these sectors, including brewers, perfume producers, lubricant makers and glue manufacturers.
"The bottom line is: the oil price crash is a stimulus package and comes at the right time," Volker Treier, deputy managing director of the German Chambers of Commerce (DIHK), told Reuters, adding that it would boost Europe's largest economy by at least 0.5 per cent points this year.
DIHK reckons the cost savings for German industry could amount to 20 billion euros (US$23.63 billion) this year, while low fuel prices are expected to leave more cash in consumers'pockets for goods and services.
The potential for deflationary pressures to dissuade consumers from spending in the expectation of lower prices remains a caveat, though Chris Iggo, chief investment officer for global fixed income at AXA Investment Managers, believes lower oil prices to be "unambiguously positive" for growth. "I disagree entirely with the notion that the decline in oil prices is negative and adds to the deflationary outlook," he said.
German bank Berenberg, meanwhile, expects higher disposable incomes to lift spending on alcohol by 2 per cent, potentially benefiting Belgium's Anheuser-Busch InBev, the world's largest beer maker.
Analysts and fund managers also see upside for the oil-dependent adhesives business of Henkel, which accounts for about half of the consumer goods company, as well as fragrance and flavours maker Givaudan, the products of which also rely on oil-based materials.
Since June, European personal and household goods stocks and chemicals have outperformed the broader equity market as well as the oil sector.
Frederic van Parijs, senior portfolio manager at ING Investment Management, also pointed to gold mining groups, such as Randgold, which require a lot of oil in their hunt for the precious metal.
Less surprisingly, travel groups and some logistics businesses have also come into focus. "We see investment opportunities at transport companies ... at airlines and operators of cruise liners, where oil consumption is a significant cost driver," said Adrian Daniel, fund manager at MainFirst.
Travel companies have already reported falling fuel costs, including Carnival, the world's largest cruise operator, which said fuel prices fell 15.5 per cent in the fourth quarter.
Shares in oil storage and transportation players, including Belgium-based Euronav, Netherlands-based Vopak and Oslo-listed Frontline, have also attracted investors after a pick-up in oil futures.
For the road-haulage operators, however, the falling oil price is a double-edged sword because they must pass on most of the lower fuel costs to their clients as part of long-term contracts that reflect price swings.
Furthermore, tax accounts for about two thirds of the price of fuel in Germany, compared with about a fifth in the United States. Average diesel prices in Germany have fallen only 7 per cent since June, according to most recent figures from the German statistics office. "The sector does not benefit to the extent you might expect," said Ingo Hodea, spokesman for the German road haulers and logistics association DSLV, the 3,000 members of which generate annual sales of 80 billion euros.
European industrial goods and services stocks, which include TNT Express and Deutsche Post, are down 2 per cent since early 2014, reflecting that it's their clients that enjoy the most benefit.
Most chemicals groups, too, are forced to pass on lower prices to customers, Metzler Capital Markets analyst Lars Hettche said. "But there is an exception for those companies that have strong pricing power with little competition," he added, pointing to German lubricants business Fuchs Petrolub as one example.
The Mannheim-based company is mainly up against unlisted medium-sized businesses, while oil majors are not sufficiently specialised to compete effectively with Fuchs Petrolub in the niche lubricants market.