It makes sense for investors’ first reaction to a catastrophe such as Hurricane Harvey to be the identification of companies and share prices which may be negatively impacted. The reasons are three-fold. Firstly, am I in these names, do I need to protect profits and/or can I avoid worsening of losses? Secondly, let me keep an eye on these for recovery potential when they, hopefully, rebound. Thirdly, is their an opportunity for me to profit from further share price declines, can I short sell the stock?

With Texas such an important US Oil state, the recent storm and flooding of almost biblical proportions have had a huge impact on the industry, although more so on refining than production. Around a third of US oil refining capacity is out of action, hence the spike in stateside gasoline prices (UK petrol prices may rise as a result too). However, US Crude Oil prices (more sensitive to US as opposed to Brent Crude) are actually down for the week. This is based on less US refining ability resulting in continued production having to be stockpiled before it can be refined at a later date.

Thereafter, with damage from this storm being billed as even greater than that of Katrina and Sandy, the next stop for traders is the Insurance sector which may have to pay out huge sums estimated at up to $190bn, versus $160bn for Katrina in 2005 and $70.2bn for Sandy in 2012. No particular insurance stock has done particularly badly this week, or even in the run up to the disaster. However, it’s still early days and the flood damage will take time to be fully assessed. This means potential for sentiment to shift more negatively in the days and weeks to come.

But that’s not where it ends in terms of share price impact from a natural disaster. There are opportunities for profit too.What about those companies which actually stand to benefit from such a meteorological nightmare?

Look at Ashtead which has topped the UK 100 this week with gains of 7.0%. This £8.3bn company with revenues of £3.2bn and profits of £800m provides industrial and construction equipment for hire, to help lift, power, generate, move, dig, compact, drill, support, scrub, pump, direct, heat and ventilate. All stuff that the residents and relief workers of Houston will require for the foreseeable future to get their homes, businesses and livelihoods back in order.

It’s thus no surprise to see its power solutions peer Aggreko (£2.3bn company, £1.5bn revenues, £200m profits) not far behind, its shares up 6% for the week. However, we note that these share price moves have not been purely in reaction to disaster relief requirements. Currency moves have played their part too, with the recent US Dollar rebound helping flatter the value of the majority of both companies’ profits, conveniently generated in North America, once converted back into GBP sterling.

This type of assessment is what Accendo Markets’ clients can expect from the Research department, daily. If not already receiving such insight you are probably, quite rightly, wondering why ever not? To rectify this oversight promptly, get access to the research now to benefit from the select observations, analysis and trade ideas we provide our grateful and loyal clients each and every day. Why not join them today.

Have a great weekend

Mike van Dulken, Head of Research, 1 Sept 2017