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European industrials advance again as energy prices continue to tumble

Published 01/04/2023, 08:58 AM
Updated 01/04/2023, 09:29 AM
© Reuters.

By Geoffrey Smith -- European industrial stocks advanced again on Wednesday as wholesale prices for energy extended their declines against a backdrop of unseasonably warm weather. 

BASF (ETR:BASFN) stock rose 3.2% to its highest in two months, while Covestro (ETR:1COV) stock rose 3.1% to a seven-month high as benchmark European prices for natural gas, a key feedstock, fell another 7%. The front-month Dutch TTF contract, which serves as a reference price for northwest Europe, fell 7.9% to 66.60 euros a megawatt-hour by 09:00 ET (14:00 GMT).

In France, meanwhile, energy-intensive glass producer Saint Gobain (EPA:SGOB) rose 3.6% to a new seven-month high, while Swiss-based cement maker Holcim (SIX:HOLN) rose 1.1% to its highest in a year.

TTF futures have now fallen in all but two of the last 13 trading days, and are down over 80% from their peak in the spring of last year, when European gas buyers were scrambling to replace lost Russian supplies. 

After being battered last year, energy-intensive cyclical stocks have come back into favor in recent weeks despite ongoing fears about the global economy (the International Monetary Fund's managing director Kristalina Georgieva said at the weekend that one-third of the world economy could fall into recession in 2023). 

Both BASF and Covestro currently trade at dividend yields well above their historical averages of around 2%. While both may come under pressure to conserve cash after a torrid year, BASF hasn't indicated it will change its policy of raising its annual dividend each year. In 2022, it paid €3.40 (€1 = $1.0615) a share, implying a yield of 6.7% at current prices. The company expects to post earnings before interest and tax of around €7 billion in 2022. Covestro, too, is expected to keep its dividend at €3.40 a share, which implies a yield of 8.3% at current prices. 

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