Sector commentary

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Oil & Gas

25/02/2015
Catalytic converter - Five themes from oil majors’ 2015 updates
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As the Big Oil year-end 2014 reporting season draws to an end, we reflect on the main messages from the strategy updates. Based on current guidance, majors’ organic capex is set to fall around 13% in 2015, after four straight years of capex hikes. Spend could drop more as service costs are seen declining 20-30% from their 2014 peak. Exploration and pre-FID projects – notably expensive, complex projects such as deepwater, LNG and oil sands – are prime targets for investment cuts. Base capex in high-cost regions is also being trimmed, which should accelerate global decline rates. Majors appear keener on divestments than acquisitions for now, but we would expect to see opportunistic mid-sized asset deals. In our view, Big Oil’s focus on dividends may be preventing managements from acting more countercyclically in a downturn.

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Companies mentioned

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Oil & Gas

25/02/2015
Exploration watch - Drilling returns to the Falklands
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‘Exploration watch’ is a regular Edison publication focusing on upcoming exploration activity and the impact on notable E&Ps. In this inaugural edition, we look at the upcoming campaign in the North Falklands Basin where the first well, Zebedee, is due to spud in March 2015. This campaign, targeting c 350-600mmbbl, is often referred to as ‘exploration’; however, it includes a significant element of low-risk exploration together with an appraisal opportunity, especially for those looking to expand on the existing Sea Lion footprint. With Sea Lion development FID expected in 2016, appraisal and low-risk exploration elements of the upcoming Zebedee, Chatham and Jayne East wells could all add high-value barrels to the existing 393mmboe of contingent resources identified to date. The biggest exploration targets, however, lie 40km to the south of Sea Lion where the Isobel/Elaine complex could be as big again as Sea Lion. The Falklands has seen no exploration drilling for over two years, so this campaign will be a welcome return for investors interested in what is still essentially a frontier region.

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Companies mentioned
Falkland Oil & Gas , Premier Oil , Rockhopper Exploration , See more..., Argos Resources

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Oil & Gas

30/01/2015
Catalytic converter - Inertia in US shale continues
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As the oil market awaits a negative supply response to the sharp correction in crude prices since mid-2014, we suggest a period of inertia may be ahead, with oil production, particularly from US shale, holding up in the near term. Supporting this inertia we see falling service costs, improved operating efficiencies and significant hedging as combining to sustain near-term activity. Hence, while a price correction is likely in the medium term, we forecast crude prices to remain subdued at current levels for the remainder of 2015, for which we estimate an average crude price of $52.5/bbl for the year. As 2015 capex cuts bite, hedges unwind and funding becomes increasingly difficult to secure, we expect this will form the foundation of a recovery early in 2016, where we estimate an average of $72.5/bbl will be achieved for the full year.

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Oil & Gas

14/01/2015
Oil & Gas - Macro Outlook: Current prices are not sustainable
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The oil market was late in appreciating the significance of the shale revolution and slowing demand growth. Arguably, however, the 50% plunge in prices in the second half of 2014 was excessive and is setting the scene for a rebound. Sub $60/barrel prices are below fully accounted costs for a wide swathe of projects. Sharp investment cutbacks are likely, which is particularly relevant for high depletion rate shale oil producers. The price trend may remain soft during early 2015 reflecting a continuing supply surplus. By the second half, however, we would expect a firming tendency once the significance of financing constraints and likely slowing US production growth are assimilated. Medium term, we believe a price ceiling could emerge at $75-80/barrel given the new found elasticity of supply through shale development, capacity additions in Brazil, Canada and Iraq and structural issues slowing demand growth.

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Oil & Gas

03/12/2014
Catalytic converter - Crude oil prices: A range-bound future
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Last week’s OPEC meeting has fuelled the continuing slide in crude oil prices that began back in June 2014. With crude oil prices down c 40% since that time and no sign of support from either OPEC or non-OPEC producing nations, the world has had to wake up to the burgeoning level of oversupply hampering the crude oil markets. Driven by booming oil shale activity, US oil production reached 8.9mmb/d in October, within reach of Saudi Arabia at 9.75mmb/d. From this perspective it was clear something had to be done. With the industry now beginning to cut spending in response to weaker pricing, we expect that a material reduction in US oil output, and by consequence a stabilisation in crude prices, is on the horizon. In the interim we expect pricing to remain weak, with key investment opportunities in the upstream sector being low-cost operators with significant cash and low debt. We reduce our 2015 oil price expectations to $75/bbl for Brent and $70/bbl for WTI, while leaving our long-term view unchanged at $80/bbl.

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Alternative Energy

24/11/2014
Renewables rising - Sector primer
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With regard to renewables, those lyrics, “Here Comes the Sun”, finally seem to be coming to fruition, as evidenced by the recent performance of many companies in the alternative energy/renewables sector. The recent plethora of yield company spin-offs, as well as similarly missioned “total return” companies, has provided visibility to the sector, validating it further, and offering investors a unique way to play the alternative energy/renewables space in terms of both yield and growth potential. While volatility is likely to be high, overall, we are bullish on the alternative energy/renewables sector, and believe the “total return” concept offers investors the potential for diversification, higher yield and more secured cash flows associated with renewable assets. In this report, we initiate coverage of the alternative energy/renewables sector, and present an overview of climate change, snapshots of the main subsectors and spotlights on select “yieldco/total return” companies in the space.

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Companies mentioned
Show companies...Abengoa Yield (ABY), Brookfield Renewable Energy Partners (BEP), Capstone Infrastructure (CSE.TO), Hannon Armstrong Sustainable Infrastructure (HASI), NextEra Energy Partners (NEP), NRG Yield (NYLD), Pattern Energy Group (PEGI), TransAlta Renewables (RNW.TO), TerraForm Power (TERP), Bluefield Solar Income Fund (BSIF.L), Greencoat UK Wind (UKW.L)

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*Multiple Sectors

11/11/2014
Deutsche Börse Eigenkapitalforum 2014 Research Guide
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Welcome to the Edison research guide for the Deutsche Börse Eigenkapitalforum 2014. Edison is delighted to be a partner for this event for the third time. This book profiles 75 companies that will be presenting at the Eigenkapitalforum. Connecting a large number of investors with a broad range of companies in a forum like this is moreimportant than ever. Being able to discuss the business model and outlook directly with management is hugely important for investors to identify value. In the same way, it offers quality companies the chance to stand out of the crowd and attract new investors. Thanks to all those who took the time and effort to communicate with Edison’s analysts – your contributions are reflected in the quality of this year’s research guide. The guide opens with a market strategy piece and includes an overview of each sector, as well as conference programme and maps. The company profiles include: • a discussion of the company’s strategy and market position; • a review of the business’s recent financial performance; and • a discussion on valuation based on consensus or Edison estimates. Hard copies of this guide will be available at the forum. Edison is Europe's leading investment intelligence firm, setting the standards for investor interaction with corporates. Our team of over 120 analysts and investment professionals works with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 450 retained corporate and 60 investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Our research can be accessed free of charge at http://www.edisongroup.com.

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Companies mentioned
Activa Resources , Wincor Nixdorf , Reply SpA , REALTECH , Mensch & Maschine Software , INDUS Holding , Jenoptik , Durr , Arbonia-Forster-Holding , PVA TePla , Wacker Chemie , SFC Energy , First Sensor , PATRIZIA Immobilien , DATAGROUP , DO Deutsche Office , All for One Steeb , Vietnam Holding Asset Management , NeoStem , CropEnergies , Technotrans , Aurelius , SYZYGY , Phoenix Solar , Lotto24 , TAKKT , SNP Schneider-Neureither & Partner , TransGlobe Energy , Heartland New Zealand , Adler Real Estate , KTG Energie , ifa systems , CENIT , Grand City Properties , StemCells , Tipp24 , InVision , SinnerSchrader , Erytech Pharma , Sartorius , Nanogate , Leifheit , Lanxess , Albioma , aap Implantate AG , Prosensa , Thin Film Electronics , Fair Value REIT , artnet , Grammer , Newron Pharmaceuticals , GFT Group , Mologen AG , Deutsche Börse , Global Bioenergies , Sygnis , Firstextile , Seven Principles , PSI , TXT e-solutions , BB Biotech , MagForce , Medigene , Stratec Biomedical , Deutsche Beteiligungs , Transgene , Neovacs , MorphoSys , 4SC , Evotec , Epigenomics , Innovation Group , Wilex , Paion , Primary Health Properties

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Technology

15/10/2014
Mobile ecosystems
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The heady days are over. Growth is slowing and competition is growing. There has always been opportunity for change in the mobile industry but both Apple and Google seem to have found the holes in the armour and are moving to address their weaknesses. This puts a time limit on any challenger as the risk is that these two become so big and so ubiquitous that users cannot be bothered to look elsewhere.

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Companies mentioned