Mindful Money’s weekly shares watch: BT Group, Royal Dutch Shell & Diageo

26th January 2015

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Given the 60% collapse in the price of oil since June investors will be keen to hear how business at Royal Dutch Shell has fared in recent months when it delivers its full year results on Thursday.

Under the present backdrop it is expected that fourth quarter trading numbers from the oil & gas giant should fall but Sheridan Admans, investment research manager at The Share Centre asserts that many investors should expect these figures to be much more resilient than most other oil companies given the diversity of Shell’s businesses. Admans, who rates the business a ‘buy’ says: “The company produces just as much gas as they do oil, and gas prices have held up fairly well. The refining businesses could be expected to do better, given the very poor year the industry experienced in 2013.”

But Keith Bowman, equity analyst at Hargreaves Lansdown, highlights that exposure to Russia, both in terms of sanctions and the weakness of the rouble, also remain factors. On the upside, he notes however that the improved refining environment highlighted at the third quarter results for its Downstream business, aided by the fall in the oil price, is likely to have continued.

He says: “Prior to the news, and with the share price down more than 10% over the last six months and offering a dividend yield of over 5%, analyst consensus opinion currently points towards ‘buy’.”

Thursday also sees drinks behemoth Diageo, deliver its second quarter results. The shares have outperformed the market since the company reported slightly disappointing first quarter figures in October, and over the past three months they have risen by 9%.

Admans, who has the stock on his ‘buy’ list highlights that since that update an executive is reported to have indicated that sales in the US around Thanksgiving were not as good as hoped.  He says: “However, some analysts are expecting a boost from the strength of the dollar given the high proportion of sales to the US.”

Ahead of the announcement, analyst consensus opinion is pointing towards a ‘hold’ and for his part Bowman anticipates that emerging market sales will continue to head the agenda.

He adds: “China remains a core focus following anti-extravagance measures, while government sanctions against Russia have increased the company’s challenges. More positively, management’s focus on cost reduction is likely to be underlined, while the board previously reported that the decline in Chinese organic net sales had moderated.”

Friday sees BT publish its third quarter/nine month results. The market has clearly welcomed the news of BT’s interest in acquiring EE, the UK’s largest mobile network, for £12.5bn when it was revealed in December.

Looking ahead to the update, Admans says any further hints on how those talks are going, and how the deal might be funded, will inevitably overshadow the more prosaic trading figures for the first quarter. He says: “Investors will certainly still be interested in the rate of broadband take-up, especially for the fast fibre services, and the performance of the BT Sport business.”

Bowman adds: “The group’s ongoing push to improve customer service levels at its Openreach business by employing additional engineers may be further underlined. In all, analyst consensus opinion currently points towards a ‘buy’.”

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