London’s major share indices lurched lower after reports emerged that some energy-intensive industries are at risk of having to shut down some sites or going slower due to gas and electricity prices.
But even companies that are not in especially energy-intensive industries are suffering badly.
Take Rank Group PLC (LSE:RNK), for example, which last week warned that energy costs for its Grosvenor casino and Mecca bingo venues had risen to £23mln from £13mln a year earlier, and were expected to double in the coming year based on current market prices.
It emerged today that the Treasury had been worried about the risks even before Russia’s invasion of Ukraine led to energy prices hitting record highs, with the Treasury commissioning 'Project Shine' last year.
Ministerial briefings suggested chemical and fertiliser manufacturers, cold storage, glass and cement are facing the highest risk, Bloomberg reported.
Even before this report emerged, some analysts have been picking and choosing which stocks to buy and sell based on countries and sectors that should be least effected.
UBS strategists shared the fruits of such research with clients last week, where it has screened for stocks that are “not only positioned to benefit from rising natural gas prices, whilst also considering the indirect implications on supply chain issues, consumer weakness/recession, and wage inflation”.
This process was used to identify stocks that its analysts feel should outperform and underperform in an environment where natural gas prices are rising.
The most favoured stocks were based in countries where the estimated impact of a 10% gas rationing shock is predicted to be “limited”, in sectors with low gas consumption for energy use, companies where revenues have the most positive relationship with natural gas prices, and those which have historically exhibited strong performance during periods of rising gas prices.
Unsurprisingly, energy is the top-rated sector, while financials has a low direct and indirect use of gas, while many banks are located in countries where the estimated impact of a 10% gas rationing shock is limited.
The list of “most favoured” from the UBS team is dominated by FTSE 100 companies, unsurprisingly including energy companies Shell PLC (LSE:SHEL, NYSE:SHEL) and BP PLC (LSE:BP.).
Financial stocks include a brace of banks, NatWest Group PLC (LSE:NWG) and HSBC Holdings PLC (LSE:HSBA), and investment groups Intermediate Capital Group (LSE:ICP) PLC and Man Group PLC (LSE:EMG).
Utilities in the list are Pennon Group PLC (LSE:PNN, OTC:PEGRY), SSE PLC (LSE:SSE), United Utilities Group PLC (LSE:UU.) and Vodafone Group PLC (LSE:VOD).
Others include Premier Inn owner Whitbread PLC (LSE:WTB), cigarette maker Imperial Brands PLC (LSE:IMB), British Airways owner International Consolidated Airlines Group SA (LSE:IAG), industrial pair Smiths Group (LSE:SMIN) PLC and Weir Group PLC (LSE:WEIR), media representative RELX PLC (LSE:REL), software maker AVEVA Group PLC, miner Rio Tinto PLC (LSE:RIO) and landlords Land Securities Group PLC (LSE:LAND) and British Land Co PLC.
Least favoured were those in countries with hefty gas rationing, sectors with high gas consumption for energy, revenues with the least positive relationship with gas prices and with a weak historical performance during rising gas prices.
Among the least favoured, housebuilder Persimmon PLC (LSE:PSN) was the only FTSE 350-listed stock, with the rest being continental names, led by telecoms and media trio United Internet, ProSiebenSat and Freenet, with others including Renault, Carrefour and Airbus.