european market

After opening the week lower, European stocks recovered early losses to finish the day higher yesterday, as markets tried to absorb the events of the weekend, and the $3bn absorption of Credit Suisse by its bigger Swiss rival UBS. While the deal raises a number of questions with respect to shareholder and bond holder priorities, regulators across the EU assured nervous markets that the Swiss bailout was unique to the two Swiss banks, while investors took the view that recent events would prompt a slowdown in the pace of central bank tightening this week. Even the problems being felt in the US banking system were being shrugged off with further weakness in First Republic Bank being treated as a localised difficulty, rather than anything more systemic. US markets also finished the day strongly, building on the gains that we saw last week with the Dow and S&P500 closing close to the highs of the last few days US markets also finished the day strongly, building on the gains that we saw last week with the Dow and S&P500 closing close to the highs of the last few days. This positive finish has seen Asia markets edge higher and also looks set to translate into a positive European open this morning. With the Federal Reserve rate meeting due to start later today, markets have become increasingly divided as to what the FOMC may well do when it comes to interest rates tomorrow, with opinions split between another 25bps hike, a pause, and a 25bps rate cut. Assuming recent gains hold, and we get no further surprises then the odds still favour a 25bps rate rise, otherwise, the Fed runs the risk that it sends the message it is more concerned about financial stability than it is about its fight against inflation. A rate cut would send an even worse message that the Fed sees something the market doesn't and could spook already jittery markets even further. Against that backdrop today's European open looks set to be a positive one, however, sentiment is likely to remain fragile over the next few days until we see the outcome of tomorrow's Fed meeting, and their take on recent events, while on Thursday we get the latest central bank decisions from the Swiss National Bank and the Bank of England. Read next: It seems that the Credit Suisse deal may turn out to be not that flawless| FXMAG.COM In light of recent events, the actions of the SNB will be particularly notable given they are expected to hike rates by 50bps. If any central bank has a reason to think again about raising rates it's surprising no one has mentioned the SNB, although Swiss rates are still very low relative to their peers at 1%.    On the data front the latest UK Public sector borrowing numbers for February are expected to see normal service resumed for the UK government are the net receipts of £5.4bn that topped up the Treasury coffers in January. Today's numbers are expected to see monthly borrowing rise to £11.8bn, even as tax receipts showed the UK economy is performing much better than the more pessimistic expectations that we saw at the end of last year. We also have the latest German ZEW investor survey for March which is expected to show a significant deterioration from the improvement seen in the February numbers. March expectations are expected to slow to 15.7, after hitting an 11-month high of 28.1 the previous month.  The current situation isn't expected to change that much, with an expectation of an improvement from -45.1 to -44.3. In Canada the latest inflation numbers are expected to show a modest slowing in headline CPI to 5.4% from 5.9%, while the median core is forecast to slip back to 4.8%, in a sign that it continues to remain sticky, having been stuck around the 5% level for the previous 3 months. Forex pairs EUR/USD – retesting the last week's highs at 1.0760 as well as the 50-day SMA. A move through here retargets the recent range highs at 1.1030. Still have support at recent lows at 1.0520. GBP/USD – had a strong day yesterday and looks set for a retest of the range highs at 1.2300, and even the 1.2450 area. Still has solid support at 1.1800 with a break targeting the 1.1640 area. EUR/GBP – a break of trend line support from the lows last August, currently just above the 0.8700 area, could well see further losses towards 0.8620. Resistance at the 0.8830 area. USD/JPY – slipped back to cloud support between 130.30/40 yesterday, with the main resistance still up near the 200-day SMA at 135.90. A break of 130.00 targets the 128.00 area.    Stock market FTSE100 is expected to open 16 points higher at 7,420 DAX is expected to open 77 points higher at 15,010 CAC40 is expected to open 30 points higher at 7,048

The Commodities Feed: Supply risks grow Russia’s bombing of port infrastructure along the Danube river in Ukraine has pushed grain prices significantly higher. This escalation risks spilling over into other parts of the commodities complex, particularly energy.   Energy – Oil marches higher Having struggled to break convincingly above US$80/bbl over the last week or so, Brent settled above US$82/bbl yesterday and in doing so broke above the 200-day moving average. The market would have taken comfort from China’s Politburo meeting where the government said it would provide further support to the property sector, stimulate consumption and tackle local government debt. China is key for global oil demand growth this year and the market has been getting increasingly concerned over the weaker-than-expected economic recovery, so any support measures will be helpful in easing some of these concerns. On the supply side, whilst remote for now, risks are growing following Russia’s escalation and bombing of Ukrainian port infrastructure along the Danube River. Whilst this is not a direct threat to energy markets, there are worries that this could spill over into other markets, particularly after Ukraine last week said that any ships heading to Russian Black Sea ports could be treated as potential military targets (in response to a similar statement from Russia). Russia ships almost 500Mbbls/d from the Black Sea port of Novorossiysk, while the CPC terminal in the port exports around 1.2MMbbls/d of Kazakh oil. Therefore, it is not too surprising that the market is starting to become a little nervous over a potential supply disruption, even if it is a remote risk for now.   In addition, stronger refinery margins are likely adding to some optimism over demand, although the strength in refinery margins appears to be more supply-driven than demand-driven at the moment. The strength has been driven predominantly by gasoline and middle distillate cracks, while fuel oil cracks are also holding relatively firm. European gasoline cracks have hit US$30/bbl, the highest levels since July last year. The strength in the gasoline market has been blamed on several factors, including tightness in the octane market, while hot weather in parts of Europe also appears to have led to some refinery disruptions. The initial strength in margins was driven by middle distillates, which would have led to some yield switching (gasoline to gasoil), however the more recent relative strength in gasoline could now see yields switching back (gasoil to gasoline). As a result, this is also offering continued support to middle distillate cracks. In addition, in the US, an unplanned outage at Exxon’s 540Mbbls/d Baton Rouge refinery, the fifth largest refinery in the US, is also providing some strength to margins. European natural gas prices also rallied significantly yesterday with TTF settling 8.5% higher on the day, taking it back above EUR30/MWh. There will be concerns over what further escalation in Ukraine could mean for the small but still important amount of Russian pipeline gas that runs through Ukraine into the EU. Fundamentally though, the European market remains in a very comfortable position with storge almost 84% full. While uncertainty may provide support to prices in the near term, we expect prices to come under pressure over much of the third quarter, given storage will be full well ahead of the next heating season (assuming no significant supply disruptions).  

The Commodities Feed: LNG strike action delayed The oil market has shrugged off the weakness seen in equity markets with strong fundamentals continuing to support prices. Meanwhile, European gas prices came under pressure yesterday with delayed strike action at Australian LNG facilities raising hopes that parties could come to a deal.   Energy - Saudis increase prices into most regions Sentiment in the oil market remains constructive after Saudi Arabia and Russia decided to extend their voluntary supply cuts by three months. ICE Brent managed to edge higher yesterday, settling at US$90.60/bbl, whilst the Brent Dec’23/Dec’24 spread continues to surge, settling at a backwardation of US$7.28/bbl, up from less than US$4/bbl in late August. The strength in time spreads is clearly indicating tightness in the oil market. Our balance sheet shows that the market remains in deep deficit through until year-end, before moving back into a small surplus in 1Q24. While this surplus may lead to some price weakness early next year, we believe that it will be short-lived with the market set to return to deficit over the latter part of 2024.   Following the extension of Saudi cuts and the tightness in the market, it was no surprise that Saudi Arabia increased its official selling prices (OSP) for most grades of its crude into most regions. The flagship Arab Light into Asia saw its OSP raised by US$0.10/bbl MoM to US$3.60/bbl over the benchmark for October - the highest level seen so far this year. All other grades into Asia also saw increases, while similar action was taken for grades into the US and Med. Europe was the only region which saw some relief, with OSP’s for all grades cut. API data released overnight was constructive, showing that US crude oil inventories fell by 5.5MMbbls, This is larger than the roughly 2MMbbls draw the market was expecting. In addition, crude oil inventories at the WTI delivery hub, Cushing, declined by 1.35MMbbls. On the product side, gasoline stocks fell by 5.1MMbbls, while distillate stocks increased by 300Mbbls. The increase in distillate stocks was marginal but will help ease some concern over low middle-distillate inventories as we head into the northern hemisphere winter. The more widely followed EIA inventory report will be released later today.   Natural gas prices came under significant pressure yesterday with TTF falling by almost 10%. This is after growing optimism that strike action at two of Chevron’s LNG facilities in Australia may be avoided. Partial strike action was meant to start at Gorgon and Wheatstone today. However, this has been delayed until tomorrow as the company and unions continue to work towards a deal. The two facilities make up around 6% of global LNG supply so the market continues to watch these developments closely. The European market will also have to deal with lower Norwegian gas flows for a little bit longer than originally anticipated. Field maintenance at several fields, including Troll has been extended by a couple of days. Total Norwegian flows are around 137mcm/day, compared to more than 300mcm/day in mid-August.

Hi-5 fuel oil spread likely to widen The high-sulphur fuel oil (HSFO) market has seen significant strength this year. In fact, the HSFO crack traded at an unusual premium in north-west Europe briefly over the summer. A key driver in the strength of the HSFO market has been the tightness in the medium sour crude market, which as mentioned has come about due to ongoing OPEC+ supply cuts. The tightness in the sour market is reflected in the unusual discount of the Brent/Dubai spread. In addition, the European market would have been supported by reduced Russian flows since the EU ban was implemented earlier in the year. Over the summer months we would have also seen the usual stronger demand in the Middle East for cooling purposes. This demand should ease in the months ahead, which should support the view of weaker HSFO cracks. Already, we have started to see these cracks weakening from their recent highs. However, this weakness is likely to be somewhat limited given the tightness in the medium-sour crude market. As for very-low sulphur fuel oil (VLSFO), we expect this market to be relatively well supported given the strength that we are seeing in middle distillates and the expectation that the middle distillate market should hold up relatively well through the coming months. Therefore, given expectations of some weakness in HSFO and support for VLSFO we believe the Hi-5 (VLSFO-HSFO) spread will widen from current levels. It is also worth pointing out that we are not far off from levels where this spread has historically found some good support.

Business model and strategy The Company’s description The Mercor capital group is one of the leaders of the European market of passive fire protection and a leading entity in this industry in Poland. Mercor started operations in 1988. The Company's financial year does not coincide with the calendar year, it starts in April and ends in March. Currently, the capital group includes nine operating subsidiaries. The company offers assistance in the selection and design of fire protection systems. The offer of the group includes: ■ Smoke exhaust, heat exhaust and roof lighting systems (e.g. smoke exhaust vents, fixed skylights, roof hatches, ventilation vents, skylights, smoke curtains, shutter vents). ■ Fire ventilation systems (e.g. smoke exhaust fans, fire dampers, shut-off valves, staircase overpressure systems, garage jet ventilation systems), ■ Fire protection of building structures (e.g. fireproof board systems, spray systems, installation passage systems, magnesium board systems), ■ Fire separation systems (doors, gates, profile walls). Mercor has eight production plants located in several European countries, of which four plants are located in Poland. The group employs over 900 people.     The largest Company’s production plant is the factory in Cieplewo near Gdańsk, from which Mercor generates nearly half of its consolidated revenues. The plant in Russia produces products (mainly smoke and ventilation systems) for the Russian and former Soviet republics, generating over 10% of revenues. The plant in Ukraine processes ventilation flaps mainly for the Polish market. The material sent there is already well advanced, and the work carried out there requires the involvement of manpower. The factory in Ukraine generates about 10-15% of revenues. On the other hand, the plant in Spain mainly produces fire protection panels and spray systems used in tunnels, primarily for the local market

Mabion – untapped potential The turbulent period of the COVID-19 pandemic had its significant impact on the biotechnology sector. For Mabion, it became the gateway to signing a deal with Novavax and completely changing its strategy. From a company developing its own biosimilar drug, Mabion wants to transform itself into a leading CDMO provider on the European market in the area of biological drugs. Biologics CDMO market in the long term is expected to grow low double digits, as demand for outsourcing CDMO services is systematically growing. In our view, signing contracts with brand new customers will be the catalyst for a change in the company's perception. Based on our forecasts, we value the company at PLN 22.9 over a 9-month horizon.   1H2023 results - good half-year ahead of planned shutdown In 1Q2023, Mabion realized revenues of PLN 39.5 million, operating profit of PLN 18 million. The EBITDA result was PLN 19.8 million, and net profit was PLN 16.5 million. We expect 2Q23 to be weaker than the first quarter, but in our view the entire first half of 2023 will be very good in terms of results. Given that the company is planning a shutdown in the second half of the year, the H1 EBITDA result could be a major part of the full-year result. In 2Q23, we expect revenues of PLN 34.4 million, EBITDA of PLN 13 million and net profit of PLN 9.9 million.   Untapped potential Mabion, which specializes in the field of monoclonal antibodies, will have a production capacity of almost 10,000 liters and modern equipment after the ongoing modernization of its production facility. The value of the company's fixed assets (excluding depreciation and amortization) after the PLN 100 million investment will increase to PLN 260 million. The company's market value of PLN 290 million and EV/EBITDA ratio of just over 6x, with median ratios of peers at over 14x, leads us to believe that the company has a large untapped potential for value growth and that it is valued slightly above replacement cost. However, to bring out its potential, Mabion needs to diversify its customer portfolio and prove that it can win other orders beyond pandemic-driven Novavax contract.   Biologics CDMO market is attractive, but needs to recover from pandemic Market analyses indicate that in the long term, the market for biologics CDMOs is very attractive - Prophecy Market Insights estimates the market's CAGR between 2023 and 2032 at 11.8%. However, Mabion has had to build its reputation and recognition there and seek new customers in a challenging post-pandemic period. Large European companies such as Lonza Group and Catalent are now reporting pressure on margins and pointing to post pandemic revenue declines. In our view, however, the experience of working with Novavax indicates that Mabion is a flexible enough organization that it will be able to adapt to customer expectations and successfully win new orders.   Risks to valuation and recommendation The main risk factor we see for our forecasts and valuation is the risk of failing to win orders to eventually replace the contract with Novavax. Our valuation is based on DCF (PLN 18.3, 75% weight) and peers (PLN 29.1, 25% weight) which implies a valuation over a 9-month horizon of PLN 22.9/share.