Mindful Money’s weekly shares watch: BP, Sky & Vodafone

2nd February 2015

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With the oil price having gone into free-fall since June last year BP shareholders will be eager to see how the company has adjusted its plans when it updates the market on Tuesday.

Following a small rise, Brent is presently trading at $54.80 per barrel while WTI is at $49.80, and just last week the oil major’s competitor Shell announced it was slashing global spending by almost $10bn on the back of falling energy costs

BP has witnessed its shares fall by 12% over the past six months but Sheridan Admans, investment research manager at The Share Centre notes that the firm is already taking steps to address the low price environment by freezing salary rises and cutting back on its own exploration expenditure.

Looking ahead to the update, Admans who is calling the shares a ‘buy’, says: “We may also see further asset disposals and a possibility of large asset write-downs. However, in terms of operations and production the company has been doing well and we expect to see more of the same for the final quarter. Investors would also like an update on the Russian situation along with the Gulf of Mexico disaster.”

Hargreaves Lansdown equity analyst Keith Bowman adds that the fall in the Russian rouble against the US dollar and its negative impact on the earnings contribution from oil group Rosneft, where BP has a near 20% share stake, is likely to have impacted performance.

In addition he notes the dividend payment will remain in focus although current group policy is to review the level of the dividend at the first and third quarters annually. Bowman says: “More favourably, and like rival Royal Dutch Shell, the fall in the oil price should have assisted Downstream refining operations, whilst the recent positive news in relation to its expected fine for the Gulf of Mexico accident may be further underlined.”

Prior to the release and with the shares offering a dividend yield of over 5%, which is not guaranteed, the analyst consensus opinion currently points towards a ‘cautious buy’.

Wednesday sees Sky, up 7% over the last six months, deliver its latest interim management statement. Admans, who has the firm on his ‘buy’ list highlights that the growth in customer numbers and more importantly the amount upgrading to a single package, is one of the key areas for investors to focus on. He adds: “Comments on new initiatives and its expansion into Europe are other areas of interest. The company recently warned investors that the outlook remains challenging as financial pressure mounts on consumers. The share price has risen recently helped by hopes that it will not overpay for the Premier League rights.”

Vodafone, up a decent 21% over six months, reports its third quarter update on Thursday. Bowman says that the group’s increase in commercial spending – aided by funds derived from its 2014 Verizon Wireless stake sale – is expected to underwrite a further improvement in revenue performance. “The growing contribution from data is again likely to be highlighted, while an update on the 10.5m 4G customers achieved as of its half year results could be forthcoming. In all and with industry consolidation a current prominent theme, analyst consensus opinion currently points towards a ‘cautious buy’,” he says.

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