Keppel Corporation Limited’s Stock Price Is Up By 18% In The Last 30 Days: Here’s Why

Keppel Corporation Limited (SGX: BN4) is a conglomerate with a few major business segments, namely, Offshore & Marine, Property, and Infrastructure.

The conglomerate has been one of the most hated stocks in Singapore’s market over the past few years due to its heavy exposure to the oil and gas industry through its Offshore & Marine segment. From the start of 2013 to 2016, Keppel Corp’s stock price had declined by 41% from S$11 to S$6.51.

The company’s current stock price of S$6.09 is lower compared to the start of this year. But, in just the last 30 days alone, Keppel Corp has seen its stock price climb by 18%. What happened?

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.

In the case of Keppel Corp, it appears to be the latter at work.

The case with Keppel Corp

Firstly, oil prices have been climbing, partly as a result of recent developments in the oil & gas industry. For instance, over the weekend, a number of oil-producing nations (from both within and outside OPEC) had agreed to cut their output of oil. This could have easily swung investors’ opinion on the future direction of the oil & gas industry from one of pessimism to one of optimism.

Secondly, Keppel Corp’s business performance has been poor of late. In fact, during the third-quarter of 2016, the conglomerate’s revenue, net profit, and earnings per share were down by 40%, 38%, and 38%, respectively when compared to a year ago.

What’s next

A higher oil price has quite clearly improved investors’ sentiment toward companies exposed to the oil and gas industry, such as Keppel Corp.

In fact, Keppel Corp is hardly the only company with exposure to oil and gas that has seen its stock price climb recently. One good example is Sembcorp Industries Limited (SGX: U96), a conglomerate with a significant oil rig building business through its majority-owned subsidiary Sembcorp Marine Ltd (SGX: S51) – Sembcorp Industries’ share price has climbed by 13% over the past month.

This change in sentiment is not without merit, given that higher oil prices would incentivise the oil industry to start investing again. If this holds over the long-term, it should benefit Keppel Corp and its peers.

But there is one thing that investors should be cautious about here. What if oil prices cannot sustain their current momentum? Investor sentiment on a company such as Keppel Corp could very well 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.