AG Edwards Refining & Marketing Brief & IBM Contract

Technology

Published: December 14, 2006 4:17 am

By Yaser Anwar, CSC of Equity Investment Ideas

Here’s an excerpt from AG Edward’s R&M briefing a friend sent me (thanks Ray!). Check back later (midnight) for my analysis of Exxon Mobil.

US refining margins declined in all regions, except the West Coast. The composite margin fell for the second straight week, and averaged $8.84 versus $10.23 the prior week. For 4Q06, margins are averaging $9.08 below $12.26 in 3Q06 and $10.20 a year ago. In contrast, marketing margins trended higher in all regions.
Singapore margins are at their lowest level in over four years at $0.04 versus $2.07 a week ago; averaging $2.17 in 4Q06 compared to $4.72 in 3Q06 and $5.78 a year ago. Meanwhile, European refining margins remained depressed at ($1.60) versus ($1.23) the prior week, and are currently averaging $0.28 in 4Q06 versus $1.56 in 3Q06 and $2.78 a year ago.
Ethanol prices were higher at $2.32, up from $2.22 last week and are averaging $2.07 for 4Q06 compared to $2.67 last quarter and $2.18 in 4Q05. The gasoline spread increased to $0.62, above the historic average of about $0.40, and the blender’s tax credit of $0.51.
Implications: Refining margins have declined the past two weeks as domestic utilization rates have rebounded from longer-than-anticipated seasonal maintenance. Given our expectation for crude throughputs to remain near current levels, margins should stabilize and potentially trend higher pending near-term winter weather patterns.

IBM wins $4B contract with the German military

This morning the German parliament approved its defense budget with 7B Euros or $9B allocated for IT HW and services (IBM and Siemens). The Street views this as a significant positive for IBM who will capture ~$4B of the deal (40% of contract).
The Street is currently modeling ~$13B in services bookings for the December Q with deals announced to date ~$6B (excluding the German military deal).
IBM usually reports around 20-30% of its deals over the course of a Q. This mega deal will likely materialize in either the Q4 or Q1 reported bookings figure.