The rumour mill was powering the FTSE 100 forward on Friday with investors jumping on more speculation about a potential Chinese economic reopening.

Earlier this week, global equities rallied after social media posts suggested the Chinese were creating a committee to end zero covid policy and reopen the economy.

“Any indication that some rules could be relaxed would be an immediate dose of grease in the jarring cogs of China’s economy,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

The optimism around China was compounded by better than expected US jobs numbers on Friday showing the US economy was still powering ahead despite economic headwinds.

Non-farm payrolls grew by +261k in October, yet another month of stellar job growth.

Past two months show revisions of +52k for September and -23k for August, so this is an even stronger report.

Unemployment rate rose a tick to 3.7%.

This is a very strong economy.

— Justin Wolfers (@JustinWolfers) November 4, 2022

FTSE 100 Miners

The FTSE 100 miners were inevitably the top gainers on Friday as commodity prices surged on hopes of a rebound in demand from China.

Anglo American stormed to the top of the leaderboard gaining nearly 10% with Antofagasta adding over 7% and Rio Tinto 6.5% at the time of writing.

Prudential – gaining 8.5% – has a significant Asian focused business and will benefit from a relaxation in China restrictions.

The strong performance in the FTSE 100’s China-exposed stocks came after a bumper session in Chinese equities overnight.

“The Hang Seng index recorded its biggest weekly gain in 11 years, rising 8.7% to 16,161. A good chunk of those gains came on Friday as stocks jumped in anticipation that the Chinese government would relax its zero-Covid policy from March next year,” said Russ Mould, investment director at AJ Bell.

“Prior to this week’s rally, Asian stocks had struggled this year amid fears about a sharp slowdown in economic growth partially caused by stringent Covid lockdown rules in China. Even after the rebound this week, Hong Kong’s index remains 30.6% lower year-to-date.”

BP and Shell have both reported their third quarter results and provided insight into how the oil majors are performing as oil prices fall back from the $100+ levels seen after the start of the war in Ukraine.

By all accounts the oil majors had a successful third quarter with profit rising compared to last year. BP’s underlying profit rose to $8bn while Shell’s Adjusted Earnings jumped to $9.5bn.

There was a slight deterioration compared to the second quarter for BP who reported Q2 underlying profit of $8.5bn. Shell had reported $11.5bn earnings in Q2.

As we move towards the end of the year, BP and Shell are trading at their highest levels of 2022 as oil prices rally on hopes of a Chinese economic reopening and end of their zero Covid policy.

Despite BP and Shell shares moving in tandem for most of the year, there a striking differences in the underlying valuation of the shares.

BP Shares Valuation

BP shares trade at 8.7x historical earnings and just 3.8x forecasted earnings. This is of course reliant on BP meeting analyst earnings estimates but these multiples suggest deep value.

From an income perspective, BP has a current yield of 3.2%. This isn’t particularly attractive based on BP’s historical yield an is broadly inline with the FTSE 100 average. That said, the Dividend Cover is 3 so there’s plenty for space to increase dividends and BP are also embarking on a significant buyback programme.

Shell shares

With the Shell share price at 2,530p, the company has a notably higher price-to-earnings ration at 13.7x. This may reflect a premium the market has given to Shell due their exposure to gas and effort in reducing their carbon footprint – something BP is also making significant steps in doing as well.

Nonetheless, Shell does trade at a much higher valuation than BP and also has a lower yield at 2.3%, although Shell has recently hike the dividend. So with these basic valuation metrics, Shell does appear expensive compared to BP.

BP generated a similar amount of cash from operations ($8.2bn) as Shell ($12.5bn) in the third quarter, but did this from around half of the revenue of Shell (BP revenue $57.8bn; Shell $98.7bn). This would suggest BP was more efficient than Shell at generating cash – in the last quarter, at least.

However, BP revenue was more heavily hit during the summer by lower oil prices which could be a cause for concern among investors when extrapolating out the potential impact into 2023. Indeed, Shell’s revenue fell by only 5% from Q2 to Q3 while BP’s sank 17%.

The owner of a number of leading homeware brands reported a record financial performance for the year to end July.

According to its market research, nearly 80% of UK households own at least one of the group’s products.

It was a year of exceptional financial and operational progress, made more notable against a backdrop of global supply chain and economic hassles.

Revenues were up 13% to a record £154.2m (£136.4m), while adjusted pre-tax profits were 42% better at £15.8m (£11.2m), taking adjusted earnings up 32% to 14.7p (11.1p), with a 42% improved dividend of 7.12p (5.02p) per share.

Whilst the current cost of living crisis represents a substantial challenge to all consumer-facing businesses, the group is well placed to respond to this given its relentless focus on delivering value and growth. 

Energy efficient air fryers are doing very well

The UP Global Sourcing Holdings (LON:UPGS) group, which owns the Salter and Beldray brands, expects that current year profit performance will be in line with current market expectations.

The £128m capitalised company sells to over 300 retailers across 38 countries specialising in five product categories: Small Domestic Appliances; Housewares; Laundry; Audio; and Heating and Cooling. 

Other brands include Progress (cookware and bakeware), Kleeneze (laundry and floorcare), Petra (small domestic appliances) and Intempo (audio).

It has recently renewed its licence with Russell Hobbs for non-electrical products.

Analyst Opinions – attractive 5.5% yield

Darren Shirley and Clive Black at Shore Capital Markets consider that the group “is very well positioned to deliver sustained growth across its four growth pillars, supported by ongoing investment in systems and human capabilities.”

Noting the current attractive yield for the shares at 5.5%, the brokers rate the equity as attractively priced.

Their estimates are for revenues for the year to end July 2023 are for £169.1m (£154.2m) and EBITDA of £20.0m (£18.8m) and adjusted earnings of 14.5p (13.8p) and a 7.2p (6.9p) dividend per share.

Conclusion – after a 50% two-week gain shares going higher yet

Having pushed this group’s shares two weeks ago (24 October) at just 95p, where we stated that they were far too cheap, it is very pleasing to note the market’s reaction on the results.

After hitting 147.52p at on time, they have since slipped back to 142.5p, but still showing a very useful gain in such a short time.

After allowing for some short-term profit taking, I see these shares going even higher yet.