City hopes to see bigger profits in the pipeline from BP

Scotland on Sunday: City hopes to see bigger profits in the pipeline from BP

Market Watch

Published Date: 27 April 2008
By Nathalie Thomas

OIL giants BP and Royal Dutch Shell will reveal this week that cash has been flowing in as oil prices continue to soar. As a barrel of the black stuff tops $120, it is expected to lift figures at both companies.

City watchers will look for signs of a turnaround at BP after a difficult year in 2007. In particular they want to see evidence of BP chief executive Tony Hayward’s pledge to “close the performance gap” with rivals after annual profits fell by more than a fifth last year.

Hayward set out to turn the company around in February by revealing plans to cut 5,000 of its 97,000 employees. He also tried to encourage beleaguered shareholders with a 25% hike in the dividend.

According to analysts’ predictions, Hayward’s charm offensive seems to be paying off. Consensus in the City points to “clean” first-quarter profits of $5.27bn (£2.67bn), up 32% on the first quarter of 2007. However, assessments of BP’s refining performance vary wildly after it encountered difficulties in the US.

In contrast, Royal Dutch Shell is steaming ahead. It posted a record surplus of $27.6bn (£13.9bn) last year, prompting calls for a windfall tax, and is thought to have lost none of its momentum in the first three months of 2008. Analysts expect first-quarter profits to be up 22% to $6.77bn (£3.43bn).

But it hasn’t all been plain sailing for the company after militants stepped up attacks on its operations in the Niger delta earlier this year. It also cut 180 jobs in Aberdeen last week as part of an efficiency drive.

Also reporting this week is Premier Inn owner Whitbread, which walked away from talks about a £3bn merger with Travelodge at the end of last month.

Premier Inn has done particularly well for the company, which also owns Costa Coffee, with like-for-like sales at the hotel chain accelerating at almost double the rate of the rest of the group.

Overall, analysts are expecting Whitbread to post underlying pre-tax profits of £204.9m.

Home Retail Group, which owns Argos and Homebase, will offer an update on how the high street is faring amid the credit crunch when it posts annual profits on Wednesday.

Consensus in the City points to an encouraging 14% rise in annual pre-tax profits to £430m, and a dividend hike of around 12%, but analysts are warning that the group is likely to struggle in the new trading year.

According to Keith Bowman of Hargreaves Lansdown stockbrokers, the City widely expects a serious drop in profits in 2008.

BSkyB posts third-quarter figures on Wednesday amid ongoing speculation about its 17.9% stake in ITV.

Rumours have been circulating some City trading desks that the German broadcaster RTL has approached BSkyB about the holding. But both companies have refused to comment on the speculation and BSkyB is expected to confirm on Wednesday that it will forge ahead with an appeal against the Government’s ruling that it needs to reduce the size of its stake.

The ruling forced BSkyB to announce a £353m asset writedown earlier this year, but third-quarter figures are expected to be much healthier.

The City is forecasting net customer additions of 57,000 in the three months to March 31, up 12% on the same period last year. Underlying operating profits are expected to come in at £208m while group sales are likely to reach £1.26bn.

Week ahead

TOMORROW

Whitbread (finals); Lok’nStore (interims); ASOS (trading update); Arena Leisure (AGM)

TUESDAY

Game, Johnson Service, N Brown (finals); ARM Holdings, BP, Royal Dutch Shell (interims); Friends Provident (trading update); Admiral, Forth Ports, HBOS (AGMs)

WEDNESDAY

Home Retail, Shed Media (finals); BG, BSkyB, Fenner (interims); Standard Life, UTV Media (trading updates); British American Tobacco (AGM)

THURSDAY

MP Evans (finals); Thomson Reuters (interims); Aviva, GKN, National Express, Reckitt Benckiser, Tomkins (AGMs)

FRIDAY

Rentokil Initial (trading update); Benfield, T Clarke (AGMs)

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