Sembcorp Industries Limited’s Share Price Is Up By 14% In The Last 30 Days: What Happened?

Due to the collapse in oil prices over the past two years, many of the industry’s players have faced serious challenges to their businesses and seen their share prices fall hard.

One of the largest companies in Singapore’s stock market to be affected by the slump in oil prices is Sembcorp Industries Limited (SGX: U96), a conglomerate with significant exposure to the oil & gas industry through its majority ownership of oil-rig builder Sembcorp Marine Ltd (SGX: S51).

But in the last 30 days, Sembcorp Industries’ stock price has climbed by 14%. What gives?

Reasons for gains

There are many reasons why a company’s share price could rise. But, the reasons can generally be classified as business-performance-related, or investor-sentiment-related.

The former deals with how a company’s business has performed or is expected to perform. And in terms of business performance, one of the really important numbers would be the company’s profit.

Meanwhile, the latter is about the overall mood of market participants – are investors more greedy than fearful, more pessimistic than optimistic et cetera? In general, negative emotions (fear and pessimism) tend to drag down the prices of stocks while positive emotions (greed and optimism) tend to push up stock prices.

So which of the two factors above is the dominant reason for the recent surge in Sembcorp Industries’ share price? Let’s examine.

The specifics with Sembcorp Industries

In its latest quarterly results announced in October, Sembcorp Industries reported that its revenue, net profit, and earnings per share had all declined by 10.8%, 58.1%, and 60.7%, respectively. Moreover, its trade receivables also increased from a year ago despite the decline in revenue.

From the numbers above, it is difficult to attribute the company’s recent share price increase to its business performance. This leaves us with investor sentiment.

And, there are reasons to believe sentiment is at play. Over the weekend, a host of oil producing countries (both non-members and members of the Organisation of the Petroleum Exporting Countries) agreed to cut their oil output. This sent oil prices climbing – the current US$52.77 price of Crude Oil WTI is up nearly 20% from the US$44 level seen in mid-November.

A Foolish conclusion

As you can see, higher oil prices have very likely improved investors’ sentiment toward oil-related companies, such as Sembcorp Industries.

But here’s an important question: Will oil prices fall from here, remain at their current level, or move higher? Investor sentiment could very turn in the other direction if oil prices were to fall.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.