IG analyst says these three stocks are worth watching as the Ukraine war unfolds
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There’s no doubt that the ASX200 is under pressure from the war in Ukraine, but analysts at IG Markets have flagged that some companies could see their profits boosted by the conflict.
“Global equities remain under pressure as Russia’s invasion of Ukraine weakens sentiment, and threatens global economic activity,” market analyst Kyle Rodda said.
“The situation remains dynamic. However, the heightened uncertainty from a potentially protracted war is keeping investors from buying into equities, as the outlook for growth and inflation is assessed.”
“At a macro-level, the conflict is clearly bad for the global economy and stocks. However, there are areas of the Australian economy and ASX that could see some benefit from the consequences of this war.”
Here are 3 stocks that could rise as the war unfolds:
Rodda said that energy prices are surging on fears that the war could disrupt production in Russia and lead to trade restrictions on Russia gas exports into Europe.
“Oil prices – for one – have hit fresh 7-year highs in recent days, placing a rocket under already flying energy stocks, with the price of Brent WTI both well above $US100 per barrel,” he said.
“Woodside Petroleum hit fresh post-pandemic highs in recent days, powered too by some solid HY results in February, which itself was fuelled by tight global energy markets and improving demand as the global economy reopens following the pandemic.”
The company climbed back to its highest level since before the pandemic following the release of its annual report, which detailed the merger with BHP’s petroleum business, scheduled for completion in June.
Last year Woodside also took final investment decisions on Scarborough and Pluto Train 2, agreed to sell-down Pluto Train 2, and announced a target to invest $5 billion in new energy products and lower carbon services by 2030.
And the company said on nearly every metric this led to its best financial performance since 2014, reporting a net profit after tax of $1.98 billion, and an underlying NPAT of $1.62 billion.
Plus, directors have declared a full-year total fully-franked dividend of 135 US cents per share, representing an 80% payout ratio of underlying NPAT.
“Our strong operating revenue of just under $7 billion is almost double what we achieved in 2020,” the company said
“We have been able to capture the favourable market conditions and deliver an annual average realised price of $60.3 per barrel of oil equivalent, the highest we have seen in seven years.
“The current high prices for oil and LNG give us confidence as we increase our investment in future production.”
Rodda says the trend for WPL shares remains skewed to the upside, with the next key level of technical resistance around $31.50 per share.
“Support looks to be around $27.60,” he said.
The company’s shares are currently trading at $30.44.
Traditionally, investors generally buy gold as a way of diversifying risk when s..t hits the fan, and that’s why the precious metal appears to perform well in times of war or political instability.
“Sanctions on Russia’s financial institutions is sparking a flight to alternative store of value, while diminished gold production threatens to choke off supply of the metal to global markets,” Rodda said.
“The value of gold has exceeded $US1970 at stages during the war (so far), which when accounting for a relatively weaker Australian Dollar in the past 18 months, is pushing the XAUAUD above $A2600 and around levels not seen since August 2020.”
And Australia’s second biggest gold miner NST has ridden Russian jitters to more than a 22.3% gain over the last month.
But even with a bump in the share price, Rodda says the company’s shares remain below the price it was trading at when the XAUAUD was at $A2600.
“Right now, NST is challenging trendline resistance, which if broken could drive a push towards resistance at $11.00. Support sits at around $10.00.”
The company reported revenue of A$1,807 million for the H1 FY22, up 63% from the prior half year, which it said was mostly due to higher gold volumes, with gold sales 289,786 ounces higher after its merger with Saracen in Feb 21.
NST says gold production is weighed towards the second half of 2022, driven by increasing grades at Yandal and increasing mining rates at Yandal.
And the company reckons it’s well on its way to becoming a 2Mozpa producer in FY26.
The ~$10bn gold major also recently announced it would not be going forward with an investment in a Canada-based gold project with Osisko Mining Inc, but continues to hold a $169m debt investment in the company.
Then there’s food insecurity and surging prices for agricultural commodities which is a major risk from this war – with both Russian Ukraine major producer and exporter of grains. “Wheat, for example, has hit a 7-year high in recent days,” Rodda said.
“Food inflation could be a feature of the global economy in the short-term, with agricultural companies’ bottom lines set to benefit from the increase in prices. “
And GrainCorp could be one that sees these benefits. Last month, the company rallied after reporting a bumper crop season and an upbeat FY22 guidance today.
The company is the largest grain storage and handling business in ECA and the number one edible oil processor and oilseed crusher in Australia and New Zealand – and is now forecasting EBITDA to hit in the range of $480m to $540m for the full year, with NPAT of between $235m and $280m.
MD and CEO Robert Spurway said the strong outlook reflects the company’s outstanding supply chain execution, continued delivery of operating initiatives, and high global demand for Australian grain and oilseeds.
“In addition to a second consecutive bumper crop and the global demand for Australian grain, our strong start to FY22 demonstrates the efficiency of our supply chain and the resilience of our industry,” he said.
“The strong harvest, coupled with supply shortages and adverse weather conditions in the northern hemisphere, is driving excellent global demand for Australian grain and oilseeds and strong supply chain margins for grain exports.”
And that was before the war kicked off and really raised food security concerns.
The company’s share price has been on an upward trend since start of the pandemic, and is up around 99% from this time last year, currently trading at $8.55.
“But the momentum behind that trend has increased as fears of food inflation has increased,” Rodda said.
“GNC shares are currently testing resistance at $8.60, which if broken may open a run towards $9.00 per share.
“Support on the downside is around $7.60.”