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The Independent: The Week Ahead: BP and Shell offer starkly different prospects

By Natale Labia
Published: 23 July 2007

BP and Shell’s results are due this week, and their prospects are starkly different. Brokers are backing Shell to perform strongly, but predict the worst for BP.

Shell has capitalised on strong earnings from oil refining, according to the Deutsche Bank analyst Lucas Hermann, with “further profits being possible from future disposals of extraneous assets”. Credit Suisse says the stock is “underpriced”, and expects 14 per cent profit growth and a record-breaking quarter.

One broker described BP as “asset-rich, but cashflow desperately needs to be improved”, while analysts at Credit Suisse said it was “likely to be down on predictions,” with a 16 per cent drop in profits. “Having 85 per cent of US refining capacity down at some point in the last quarter has been particularly damaging, and further uncertainty remains over Russian operations,” he added.

TODAY: After doubling profit in 2006, the specialist hedge fund manager RAB Capital is expecting further growth from its first-half results. Following expansion into the burgeoning Asian hedge-fund market the firm is optimistic, but analysts remain cautious. Despite an “outperform” status on the stock from Credit Suisse, analysts at the bank warn that the industry is intrinsically performance-related. Should markets slow, cash revenue will be hard to generate.

Results: Full year – IG Group Holdings. First half – Dominos Pizza; RAB Capital; Sthree.

TOMORROW: Mike Ashley has continued his expansion drive this month, but analysts at Panmure Gordon issued a status downgrade of Sports Direct International in anticipation of its full-year results. The wet weather has hit sales hard, with the share price falling since listing three months ago at 285p, to 190p. Tomorrow it is expected to announce it will miss 2008 earnings targets.

Results: Full year – Misys; Sports Direct International. First half – Capita Group; Wolfson Microelectronics. First quarter – Yell Group. Second quarter – BP; Wolfson Microelectronics.

WEDNESDAY: The pharmaceutical giant GlaxoSmithKline has had a difficult six months with lawsuits in the US linking their second-biggest selling drug, the diabetes treatment Avandia, with heart disease. German researchers slammed the drug last week, prompting a 30p drop in the shares to 1269p. However, the analyst Navid Malik of Collins Stewart is optimistic that the 31 projects they have in late-stage development and the new cervical cancer drug Cerverix “are notable assets that are not being reflected in market capitalisation. We are optimistic about the longer run prospects of the company”. He forecast profits in line with expectations, given the weaker dollar and sentiment towards the firm worsening over the past few months.

Results: First half – Croda International; GlaxoSmithKline; Northern Rock; Playtech; Reckitt Benckiser. Second quarter – CSR; GlaxoSmithKline; Reckitt Benckiser.

THURSDAY: Sentiment towards BT is broadly positive ahead of its upcoming results. After significant internal restructuring, increased cashflow from their Global Solutions consultancy business and the unveiling of the BT Vision Sport package, expectations are running high. However, Martin Mabbit from Numis Securities remains cautious, saying that the stock is “no longer cheap, and there are quite a few risks with BT. The sector is intensely competitive”. Following the announcement of the expected low, single-digit revenue growth, his status on the stock remains hold.

Results: First half – Access Intelligence, ARM Holdings; AstraZeneca; Bradford & Bingley; British American Tobacco; Huveaux; IBS Open Systems; Legal & General Group; Liberty International; Rathbone Brothers; Reed Elsevier; Rolls-Royce Group. First quarter – BT Group. Second quarter – British American Tobacco; Royal Dutch Shell; Shire.

FRIDAY: Numis’s Mabbit said of BSkyB: “They’re doing well in the market place, have great customer service and the right content. The results next week and the short-term future will definitely be positive.” The long run will be more problematic, he added, with “an equal number of bulls and bears”. The market is unconvinced about CEO James Murdoch’s plans for future diversification out of core attractions – like football – and towards more integrated home media systems. Numis rates the stock as a sell.

Results: Full year – British Sky Broadcasting Group. First half – Alliance & Leicester; BG Group; Flying Brands; United Business Media. Second quarter – BG Group. Fourth quarter – British Sky Broadcasting Group.

http://news.independent.co.uk/business/analysis_and_features/article2793125.ece

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