The impact of oil prices on valuations is wide-ranging and urgent.
I have just come off the phone with a company that is anticipating that they will get a force majeure order to constrain manufacturing in order to preserve gas usage.
Whilst the war in Iran is very real for many and we feel it viscerally through media reporting, this was the first specific occasion when I heard a company acknowledge that the very real effects other than rising fuel and heating oil prices are now inside the wheelarch.
What does this mean for company and other asset valuations? Well, some organisations – defence contractors, oil producers less exposed to the gulf and oil traders come to mind, will be making out like bandits. Their values will rise. Many others, maybe even the majority, will feel the pain around energy costs as well as from general economic disruption. Tourism will be very vulnerable. As the inevitable Middle East economic shock ripples across the world and depending on how government’s react, the impact will be felt in different ways and at different times. The shock will reverberate through supply chains. Some regions will pick up opportunities which would otherwise have gone to the Middle East.
What does this mean for the company valuations that you and we see every day. As always each case is unique, but I think its fair to say that right now the easiest way to answer the main question about whether valuations are up down or indifferent is to see how the nearest comparable quoted company or basket of companies are being marked up or down by the market. For example, the FTSE All Share is down by around 9% in a week. So the simplest answer on valuation is that most UK companies are probably work 92p in the £, compared to a couple of weeks ago.
Each case is unique, so if you want to get a precise answer to what the valuation is, just call us and we can do the job in full.
