Top UK Stocks to Watch: BP plunges into red in 2020 as pandemic hits
Joshua Warner February 2, 2021 9:29 AM
BP swings to a large loss in 2020 as the pandemic hits oil demand, DCC said it will beat expectations if the weather holds up, Just Eat Takeaway raises EUR1.1 billion in bonds, Polypipe buys underfloor heating specialist Nu-Heat, and Virgin Money UK returns to profit.
Top News: BP sinks deep into the red during tough 2020
BP said it sank to heavy losses during 2020 as the pandemic weighed on prices and it booked large write-offs against its exploration assets.
BP reported an underlying replacement-cost loss of $5.69 billion in 2020 compared to a $9.99 billion profit the year before. The reported loss attributable to shareholders came in at a staggering $20.30 billion compared to the $4.02 billion profit delivered in 2019. Most of the losses were booked earlier in the year when it had to make large write-offs against assets when the pandemic erupted, with depressed demand and refining margins also weighing on its performance.
The fourth and final quarter of the year marked an improvement as BP managed to stay in the black, reporting underlying RC profit of $115 million, up from just $86 million in the previous quarter but significantly lower than the $2.57 billion reported a year earlier. Reported profit in the quarter came in stronger at $1.35 billion thanks to asset disposals, compared to a $450 million loss in the third quarter and a tiny $19 million profit the year before.
BP’s reported results were boosted by $4.2 billion worth of asset disposals in the fourth quarter alone. BP said it has now locked in transactions worth half of its target to sell $25 billion worth of assets by 2025, and that it intends to sell $4 billion to $6 billion of assets in 2021, weighted toward the second half.
Net debt stood at $39 billion at the end of 2020, down $6.5 billion from the end of 2019. The company has a target to get that down to $35 billion by ‘around the fourth quarter of 2021 and first quarter of 2022’ – assuming oil prices are within a range of $45 to $50 a barrel.
BP paid a 5.25 cents dividend for the final quarter.
BP expects oil demand to recover in 2021 but said the timing will come down to how vaccine programmes progress and lockdown measures are used by governments.
BP share price: technical analysis
BP shares were trading within an ascending channel which dated back to early November. The price rebounded off the top band of the ascending trendline mid-January and has been trending lower since.
Late last week BP’s share price broke down through the lower band of the ascending channel in a bearish breakout.
A break-through the 50 sma on the daily chart confirms the bearish picture. The bears could well stay in control until the RSI heads into oversold territory.
Immediate support can be seen at 250 the 100 sma. A break-through here could see horizontal support at 230 (low 13th Nov) come into play before the bears eye 190 early November’s low.
On the flip side, any recover would need to break above 275 50 sma and ascending trendline support turned resistance. A move beyond here could attract more bulls as the price re-enters the ascending channel.
FTSE 100 news
Below is a guide to the top news from the FTSE 100 today.
DCC expects to beat expectations if the weather holds up
DCC said it expects profit to beat expectations in the financial year to the end of March 2021 if the weather holds up and doesn’t disrupt its operations.
The company, which markets and sells products and support services for the LPG, oil, technology and healthcare markets, said operating profit in the third quarter to the end of December was higher than the year before as it benefited from organic growth and the boost received from newly-acquired businesses.
‘The outlook for all economies in which the group operates remains very uncertain, with restrictions generally now increasing again. However, DCC's diverse and resilient business model and the essential nature of the group's products and services has seen it respond well to the challenges of the pandemic and trade robustly,’ said DCC.
‘Assuming normal weather conditions for the balance of the financial year, DCC expects that the year ending 31 March 2021 will be another year of development and good growth in operating profit, ahead of current market consensus expectations,’ DCC added.
DCC will release its annual results on May 18.
DCC shares were up 1.6% in early trade at 5804.0.
SSE sticks to guidance and dividend plan
SSE said it still expects to deliver adjusted earnings per share of 85 pence to 90 pence in the financial year to the end of March 2021, assuming the weather holds up and coronavirus doesn’t cause any further unexpected costs.
That would be up from the 83.6p delivered in the previous financial year and in line with the updated guidance it provided in December.
The electricity generator said it should be able to achieve its EPS goal so long as ‘normal weather conditions’ prevail in the final three months of the financial year, with renewables output from the likes of wind farms having run 5% below expectations so far. The guidance is also pinned the coronavirus pandemic knocking between £150 million to £250 million off operating profit during the year.
SSE also confirmed that it intends to pay a full-year dividend of 80p per share plus RPI in the current financial year, with the goal of raising that in line with RPI until 2023.
‘With solid operational performance and strong strategic execution, SSE is well positioned as we move towards the end of our financial year. Our robust business model is mitigating the impact of coronavirus, our disposal programme is proceeding at pace and at Dogger Bank we have shown yet again that we can develop opportunities and create value from world-class assets,’ said finance director Gregor Alexander.
‘With a number of uncertainties lifting and an increasingly supportive policy environment which further underpins our clear strategic focus on the transition to net zero, SSE is on a strong strategic footing for the rest of 2020/21 and beyond,’ he added.
SSE intends to publish its annual results on May 26.
SSE shares were up 0.7% in early trade at 1523.0.
Just Eat Takeaway raises EUR1.1 billion in bonds
Just Eat Takeaway.com said it has raised EUR1.1 billion by issuing convertible bonds to give it the financial flexibility to ‘act on strategic opportunities which may arise.’
The company has issued one tranche worth EUR600 million that is due in August 2025 and carries no interest, and a second EUR500 million tranche due February 2028 with an interest rate of 0.625%.
The bonds can be converted into shares in the company. The initial conversion price for the first tranche will be EUR135.58 and EUR144.93 for the second – representing a large premium from its current share price.
Just Eat Takeaway shares were down 1.8% in early trade at 8268.0.
FTSE 250 news
Below is a guide to the top news from the FTSE 250 today.
Virgin Money UK returns to profit and remains on course to hit targets
Virgin Money UK said it performed in line with expectations during the three months to the end of December, but warned the outlook remains highly uncertain because of the coronavirus pandemic.
The company said results were fairly stable in the first quarter of its financial year. Customer deposits were up 0.9% year-on-year to £68.1 billion as people and businesses spent less because of lockdown restrictions. Mortgages dipped 0.2% to £58.2 billion. Lending to businesses edged up 0.1% to £8.9 billion but lending to individuals fell 2% to £5.1 billion.
The net interest margin was stable as expected at 152bps and Virgin Money UK is expecting its margin to remain stable over the full year from the 156bps reported in the last financial year.
Virgin Money’s CET ratio increased 40bps to 13.9% at the end of the period.
‘Virgin Money had a profitable and positive first quarter and continued to prioritise our customers and colleagues through this uncertain external environment including through payment holidays and government lending schemes,’ said chief executive David Duffy.
‘We have made a good start to the year with the launch of new customer propositions, further roll-out of our rebrand programme and a return to statutory profit, while maintaining a disciplined approach. The Group remains strongly capitalised and we have good momentum as we look out into the remainder of the year,’ he added.
Virgin Money warned the outlook is highly uncertain and that it will be a while until it has the clarity it needs. It said Brexit being done and dusted and the acceleration of the UK’s vaccination programme were supportive for its outlook, but said further lockdown restrictions and high infection rates are ‘likely to delay the pace of normalised economic and transaction activity’.
‘As a consequence, VMUK continues to adopt a cautious view on economic assumptions and this is reflected in coverage levels, underwriting standards and liquidity levels,’ it said.
Virgin Money UK shares were up 5.7% in early trade at 139.4.
Capco struggles to collect half of rent due from tenants
Capital & Counties Properties, also known as Capco, said it has only managed to collect around half of the rent due from its tenants during 2020 as it provides special supportive measures for many of them as they struggle through the pandemic.
The company, which leases out properties in Covent Garden and the West End of London, said it has collected just 42% of the rent due for the first quarter of 2021, receiving £7.1 million of the £17.1 million due. Capco said that was in line with collection rates in previous quarters.
The company has collected just 60% of all the rent due for 2020, with 4% outstanding and the remaining 36% under special arrangements. That means it has collected £40.8 million of the £67.8 million in rent due from 2020.
‘Whilst there are significant near-term challenges to trading and an uncertain economic outlook due to the impact of the pandemic, we are encouraged by the enduring appeal of Covent Garden for customers as evidenced by recovery in footfall and trade following easing measures in the second half of 2020. Capco is in a strong financial position and we remain confident in the long-term prospects for Covent Garden and the West End,’ said chief executive Ian Hawksworth.
Capco also provided an updated valuation for its Covent Garden portfolio of £1.8 billion, down from £2.2 billion at the end of June 2020 and £2.6 billion at the end of 2019. It said the majority of the lost value has come from its retail, leisure and food and beverage outlets, which together account for 75% of the portfolio’s value.
Capco has raised money through bonds, asset sales and new financing in recent months and had net debt of £710 million at the end of 2020. It said it had seen a marked improvement in the loan-to-value ratio of the Covent Garden portfolio to 19% from 36% at the end of June.
Importantly, Capco said it has enough headroom on its Covent Garden portfolio to absorb a 68% fall in valuation. In total, it has access to over £1 billion in liquidity.
Capco will release annual results for 2020 on March 9.
Capital & Counties shares were down 2.1% in early trade at 132.9.
Civitas Social Housing sees no impact from coronavirus on rent collection
Civitas Social Housing said it has seen no impact from the coronavirus pandemic on its ability to collect rent from tenants of its social care housing and healthcare facilities. The company said it has continued to receive rents with ‘no COVID-19 impact’.
‘As the anniversary of the first COVID-19 lock-down approaches, the sector in which CSH operates continues to demonstrate strong fundamentals and robust operational characteristics that reflect the essential care services delivered within the company's properties,’ Civitas said.
Civitas said its net asset value per share edged slightly higher to 108.17 pence at the end of December from 108.01 pence at the end of September. The company declared a quarterly dividend of 1.35p, in line with its target to pay 5.4p for the full financial year that runs until the end of March 2021.
Civitas Social Housing shares were up 0.8% in early trade at 106.9.
Polypipe buys heating specialist Nu-Heat for £27 million
Polypipe has purchased underfloor heating specialist and provider of ground source heat pumps Nu-Heat for a total of £27 million on a cash-and-debt-free basis.
Nu-Heat is based in Devon and is a market leader in the underfloor heating market in the UK. It delivered £16 million in revenue in 2020 and earnings before interest, tax, depreciation and amortisation of £3.1 million. Polypipe said Nu-Heat has ‘a strong track record of profitability and cashflow generation’.
The addition of Nu-Heat is expected to boost Polypipe’s focus on areas delivering higher than average growth and will boost earnings per share in the first full year of ownership. It also said Nu-Heat will deliver returns greater than the cost of capital.
‘I am delighted to announce the acquisition of Nu-Heat, which aligns with our key growth drivers, including our focus on low carbon heating and solutions for the environmental challenges facing the built environment,’ said Polypipe’s chief executive Martin Payne.
‘This acquisition will enable us to further develop our underfloor heating capabilities, and to develop new and exciting ways to integrate underfloor heating, heat pumps, and air-based climate management systems. The Nu-Heat team have fantastic technical and application knowledge, and I would like to welcome them to the Polypipe Group,’ he added.
Polypipe also provided a trading update that said trading continued to recover since its last update in mid-December. Underlying operating profit for 2020 came in ‘slightly ahead of the previous guidance’ of £40 million, adding that the momentum was ‘continuing into the new year without any material impact from the third national lockdown’.
Polypipe will release annual results on March 16.
Polypipe shares were up 2% in early trade at 524.0.
LondonMetric buys service stations and sells Kwik Fit outlets
LondonMetric said it has spent £21.9 million on buying a series of convenience service stations while offloading a number of Kwik Fit service stations for £4.2 million.
The company said the acquisitions have been completed through three separate transactions that, when combined, offer a blended net initial yield of 5.1%.
It has purchased four modern Co-op service stations for £12.5 million, two stations in London for £5.4 million and a new Shell and Budgens station for £4 million.
Separately, it has raised £4.2 million by selling Kwik Fit service stations and IMO car washes in deals worth £4.2 million at a net initial yield of 4.7%. It said it had decided to sell the assets are acquiring them as part of a larger deal.
‘These long income acquisitions offer attractive triple net income and are let on long leases to strong covenants with certainty of income growth. Given their strong locations, they are also underwritten by vacant possession value,’ said chief executive Andrew Jones.
LondonMetric shares were down 0.5% in early trade at 228.2.
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