Mindful Money’s weekly shares watch: BP, Royal Dutch Shell, RBS & Lloyds Banking Group

27th April 2015


The dramatic fall in the oil price since last June will provide the primary backdrop for BP when it updates the market with its first quarter results on Tuesday.

While the oil major’s shares are down by 1% over the past year, over the last three months they have jumped by 12%.

Looking ahead to the group’s report, Keith Bowman, equity analyst at Hargreaves Lansdown expects that underlying replacement cost profit for the quarter is likely to have fallen year-over-year, with the dividend payment forecast to be left unchanged.

On a more positive note, the fall in the price of oil may have assisted its Downstream arm’s refining operations, whilst its management’s previously announced move to reduce capital expenditure could again be underlined.

Bowman says: “On balance and with uncertainties regarding the oil price, the group’s exposure to Russia and full legal settlement of its Gulf of Mexico accident, weighed against speculative takeover hopes following the bid for BG Group and a dividend yield of over 4.5% analyst consensus opinion currently points towards a ‘strong hold’.”

Fellow oil behemoth Royal Dutch Shell follows on Thursday with its own set of first quarter numbers and it will be the first trading update since the announcement of the takeover for BG group, and investors will be keen to hear more about the potential benefits of the merger.

Sheridan Admans, investment research manager at The Share Centre, who rates has the business on his ‘buy’ list says: “Oil prices have stabilised since the lows in January but year on year comparisons in revenue terms will obviously fare badly.”

Notably the firm’s ‘b’ shares, the preferred stock for UK investors, have fallen by 12% over the past year and are down by 7% over three months

However Admans believes investors should be encouraged by increased production levels. “With the lower oil price environment, there could be further cutback in capital expenditure and asset sales such as those in the US and Africa,” he adds.

Ahead of the update, the overall analyst consensus has cooled somewhat in recent months, but still denotes a ‘buy’.

The still majority state-owned Royal Bank of Scotland also reports its first quarter results on Thursday.

The upcoming UK General Election amongst other factors has only served to elevate investor uncertainty, as highlighted by the 8% drop in the bank’s share price over the past three months.

Bowman notes that an update for its Corporate & Institutional Banking (CIB) division’s planned reduction of its geographical footprint to approximately 13 countries, compared with 38 at the end of 2014, could be forthcoming, whilst management’s ongoing focus on cost cutting is likely to be further underlined. He says: “Ahead of the news, and with the UK government’s majority shareholding still overhanging, analyst consensus opinion signifies a ‘sell’.”

Friday sees Lloyds Banking Group publish its own first quarter results, which arrive in the wake of the Conservative Party’s pledge to sell £9bn of Lloyds’ shares if re-elected, with retail investors being offered around £4bn of the shares at an initial discount.

Admans, who lists the bank as a ‘hold’ says: “With the majority of restructuring now over, investors can concentrate on the future plans. Other areas to focus on are costs, margins, bad loans and the group’s outlook on the UK economy, particularly the important housing market. Hopefully there will not be any further provisions for PPI mis-selling or other regulatory issues.”

Bowman adds that a further reduction or ending of PPI provisions could potentially help set the scene for another reduction in the government’s shareholding, bolstered by a continued shrinkage in impairments or bad debt provisions.

He says: “The board’s reiteration of its aim to pursue a progressive dividend policy with both an interim and final dividend payment for 2015 planned – it paid 0.75 pence per share in 2014 – could also help aid a potential further government share stake sale.  Prior to the release and with the bank seen as a beneficiary of further UK economic recovery, analyst consensus opinion denotes a ‘buy’.”

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