– BG Group (BG/ LN) / Shell (RDSB LN): Two Australasian news items in last 24 hours:
– Yesterday afternoon, it was first reported that Shell CFO Simon Henry met with the China National Offshore Oil Corporation (CNOOC) Chairman Yang Hua last week to discuss potential further collaboration, where Shell indicated it will continue to allow CNOOC to co-invest and co-develop assets in Brazil and other territories. Positive commentary as backing by China’s largest oil group should obviously facilitate Shell’s required MOFCOM approval process, which is now understood to have moved to last 60 day Phase III review – with expected clearance early January.
– Overnight, it was reported in the Australian press that Shell Australia chairman Andrew Smith sees no domestic competition issues in its planned BG takeover, noting that the gas supply squeeze in on the east coast, and that fastest way to get more gas would be by swift approval by ACCC to enable the development of Arrow, Shell’s JV with PetroChina in Queensland. Unsure if article was planted by Shell to put pressure on ACCC when it expected to come with final ruling next week on 19 November. We still believe clearance is forthcoming, however Shell might probably be getting imposed more remedies than it originally anticipated (by larger share of commitments to domestic gas market).
Overall, two more positive articles coming for China/Australia clearance – with Shell having gone ex-dividend by $0.47 (spread impact about GBp 13.8), spread (0.4454 RDSB + GBP 3.83 – BG) now should trade clean from dividends – remains attractive at current Gbp 115 levels or almost 12% net spread.
– Rexam (REX LN) / Ball Corp (BLL US): Rexam provided a trading update for 3Q – overall beverage can volumes +3%, with volumes in Europe +6%, Russia +8%, North America -3% and South America -4%. Growth in speciality cans offset softness in carbonated soft drinks market. Rexam stated the Americas trading environment remained challenging and that demand in Brazil in 2H15 could be soft. In Europe, Rexam guided for low single digit growth in volume for FY15 due to 1H “weighted demand from certain customers combined with the full impact of global contracts”. Reiterates transaction with Ball is still expected to close in H1 2016. Today’s encouraging and good trading performance update, together with aluminium premium tailwinds of £30-35m for FY16, and the European restructuring programme launched in February, should further comfort limited break downside to Gbp 500+ levels. Currently Gbp 50 down, GBp 60 up, would set up spread (GBP 4.07 + 0.0457 BLL – REX) on negative regulatory headlines around Gbp 75-80p.