LONDON MARKET MIDDAY: UK Floods Damp Insurers But Buoy Housebuilders

LONDON (Alliance News) - A quiet morning for European stock markets saw London equities drift higher by midday Tuesday, with insurance companies and housebuilders moving in opposite ways following the recent flooding in northern England

The insurance industry is set to face a significant bill from the flooding that has devastated large swathes of northern England, according to two estimates of the damage, amid concerns that a new storm, dubbed Frank, could bring further problems for the UK later Tuesday.

KPMG, the accountancy, warned the economic impact of the flooding which hit parts of the UK following Storms Desmond and Eva over the course of December could be nearly GBP6.0 billion, with insurance claims for the flooding estimated to hit around GBP1.5 billion.

KPMG, however, also suggested many households and businesses will not be adequately insured and will have to shoulder about another GBP1.0 billion in costs, with further spending then required by local authorities, along with a big chunk of spending on new flood defences.

PwC, another accountancy, said it estimated the economic loss from the floods could be between GBP900.0 million and GBP1.3 billion, with insurers bearing up to GBP1.0 billion of that.

The cost estimates hit insurance company shares Tuesday, the first trading day in London since the scale of the recent flooding became apparent. RSA Insurance Group was down 1.5% and Aviva down 0.2%.

However, Connor Campbell, financial analyst at Spreadex, said the "potential windfall from the cost of rebuilding and repairing the numerous homes damaged in the northern floods" were supporting housebuilding stocks.

Berkeley Group Holdings traded up 2.5%, Persimmon up 2.3%, Taylor Wimpey up 2.2% and Barratt Developments up 1.5%.

On the first day of trading in London after a four-day holiday weekend, the large-cap FTSE 100 index was up 0.2% at 6,269.28. The mid-cap FTSE 250 was up 0.4% at 17,488.23, and the AIM All-Share index was reading up 0.3% at 730.40.

European stocks were outperforming London as they recovered from steep losses suffered on Monday while London was still closed. The French CAC 40 traded up 1.3% and the German DAX 30 up 1.5%.

Wall Street also was expected to bounce back from Monday's losses. The S&P 500 was called 0.4% higher, and the Dow 30 and Nasdaq 100 were both called 0.5% higher.

Oil prices were in focus again after a heavy fall on Monday. The commodity stabilised on Tuesday, with Brent quoted at USD36.72 a barrel, and trading within relatively narrow parameters.

The decline in oil prices throughout the year have taken its toll on oil and gas majors. At midday, BP traded down 1.7% and Royal Dutch Shell 'A' was down 0.6%.

Saudi Arabia on Monday unveiled its government budget for 2016 with a projected deficit of SAR326 billion. Government spending for next year was expected to be SAR840 billion, according to data unveiled at a press conference.

Saudi Arabia, the world's largest petroleum exporter, and other resource-rich Gulf states are struggling as a result of low oil prices. There has been discussion in the region about finally introducing some taxes, such as sales tax, in the coming year.

In London's junior market, AIM, ZinCox Resources traded down 39%. The company said it will start cutting costs and jobs across the business in order to shore up its financial position after it failed to raise the funds required under its agreement with Korea Zinc.

The company struck a deal with Korea Zinc in November to reschedule the USD57.1 million in debt ZincOx owes to Korea Zinc, but this was dependent on ZincOx raising USD5.0 million by the end of 2015. Despite "intensive efforts" ZincOx said had been made in recent weeks to raise the funds before the end of the year, it has not been able to secure a sufficient number of investors to fund this amount.

ZincOx said that given its current tight cash position, it will be actively seeking to cut costs and will review its staff numbers. The board of the company has said it will waive its remuneration for the time being. The company will now start seeking to raise new funds, though it also said it will consider managing the business in order to sell off its remaining assets.

88 Energy was one of the best performers in the AIM All-Share index, up 19%. The company said the Icewine 1 well in Alaska was drilled to its target depth and met all primary unconventional drilling objectives, along with robust conventional finds.

88 Energy said oil shows were recorded in the drill hole, along with good heavy gas and shale gas shows.

In addition to the unconventional finds, the company also saw robust results on the conventional oil and gas resources at the project, and a detailed petrophysical log interpretation of those results is now underway, it said.

Still ahead in the economic calendar, the US goods trade balance is at 1330 GMT, the S&P/Case-Shiller Home Price Indices is at 1400 GMT, and US consumer confidence is at 1500 GMT.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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