Oil prices move higher on Middle East tensions and give the FTSE 100 a lift, Croda warns on profit, Metro Bank rallies on rescue fundraising

“The FTSE 100 was steady on Monday after the shocking events in the Middle East over the weekend, with the index supported by its oil heavyweights BP and Shell,” says AJ Bell Investment Director Russ Mould.

“As it nearly always does, an escalation of tensions in the region has helped push up oil prices. This is inevitable given how much of the world’s crude reserves and production are centred there.

“One rare energy stock not benefiting from higher prices was Energean which is developing a substantial gas field in offshore Israel and is therefore right at the heart of the current uncertainty.

“Airlines descended rapidly as the market priced in higher fuel costs and, potentially, less willingness to travel to certain locations.

“The wider risk is that a sustained increase in oil prices would act as a renewed inflationary pressure and further underpin the higher rates for longer message which investors in the equity and bond markets seem to be belatedly coming to terms with.”

Croda

“A profit warning from Croda hints at the difficult global economic backdrop. Chemicals firms tend to be sensitive to fluctuations in GDP and a combination of destocking and weak demand adds up to a toxic mix for the business.

“Being diversified across different industries has not spared Croda from pain and its relatively high level of fixed costs means lower volumes will result in a hit to margins.

“This morning’s relatively measured share price response suggests Croda’s signal of a slight improvement in recent weeks is carrying weight with investors.”

Metro Bank

“Another crisis in the banking sector has been averted… for now. Metro Bank’s fundraising agreement is important on two counts. First, it avoids any panic and a run on the bank, something that could have feasibly happened if it had not raised a significant amount of cash over the weekend to shore up its balance sheet. Second, it provides breathing space for the company to conclude talks on asset sales.

“The value of the company’s bonds and shares shot up on the fundraising plan as they were previously priced as if the company was in serious trouble. The fundraising now removes a lot of the risks, yet existing shareholders who do not participate in the equity raise will suffer significant dilution. Bondholders also get a big haircut.

“The past week will have been extremely damaging for the company’s reputation and there will undoubtedly be customers who may still prefer to shift their money to a different bank.

“Metro Bank needs to find a way to keep its clientele happy and still win new business, which is going to be a tough job. It is time for a radical rethink of how the company operates. A high-cost base is unsustainable, so something has to change. If not, Metro Bank might find itself gobbled up by a bigger company whose first job will be to shut down its expensive branch network.”

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