Top UK Stocks to Watch: BP shares rise as it launches share buyback
Joshua Warner April 27, 2021 8:35 AM
BP breezes past expectations, HSBC’s profits jump as the economic outlook improves, Whitbread expects to recover as restrictions are lifted, AVEVA expects to deliver growth and better margins after buying OSIsoft, and PZ Cussons sales grow thanks to demand for its core brands.
Top News: BP beats expectations with solid start to 2021
BP breezed past expectations in the first quarter of 2021 as it launched a new $500 million share buyback and promised to keep returning excess cash to investors after reaching its net debt target much sooner than expected.
The oil company reported an underlying replacement cost profit of $2.63 billion in the first quarter, up from $791 million a year earlier and just $115 million in the first quarter of 2020. That came in well above the $1.20 billion expected by analysts.
Its profit attributable to shareholders came in at $4.66 billion, turning from a $4.36 billion loss the year before and rising from $1.35 billion in the previous quarter.
BP launched a new share buyback as anticipated after reaching its net debt target sooner than expected earlier this month. Net debt stood at $33.3 billion at the end of March, below the $35 billion target after BP sold-off a number of assets in the period.
‘With the acceleration of divestment proceeds, together with strong business performance and the recovery in the price environment, we generated strong cash flow and delivered on our net debt target around a year early. We are commencing share buybacks in the second quarter which, alongside our resilient dividend, support the growth in distributions to shareholders,’ said chief executive Bernard Looney.
The company said it will return $500 million through a share buyback in the second quarter and will continue to return at least 60% of surplus cash going forward. This will help counter any dilution that comes from employee share awards.
This will be accompanied by a 5.25 cents per share for the quarter.
‘We generated around $11 billion of cash inflow in the first quarter, enabling us to reach our $35 billion net debt target significantly ahead of plan and move to the second phase of our financial frame. We are starting buybacks in the second quarter with the intent to offset the full-year dilution from employee share schemes. In addition, we intend to distribute 60% of surplus cash flow for 2021 through share buybacks, with the remaining 40% being used to further strengthen our balance sheet. We'll outline these plans further in our second quarter results,’ said chief financial officer Murray Auchincloss.
BP said the oil market is continuing to rebalance itself and that demand should recover in 2021 ‘due to strong growth in US and China and as the distribution of vaccinations gains momentum and lockdown restrictions are gradually lifted.’
Where next for the BP share price?
BP had been trading in a holding pattern ahead of earnings. The BP share price had also just slipped below its multi-month ascending trendline and its 50 EMA ahead of the release.
Today’s 2.8% jump higher has seen the share price retake the 50 EMA and the ascending trend line at 300p. The RSI has turned positive.
Buyers will now look to break out of the upper band of the ascending channel at 306p before targeting 325p March’s high and a 9-month high.
Failure of the trend line resistance turned support to hold could see the BP share price test the 50 EMA at 295p. A break below the lower band of the horizontal channel and the 100 EMA at 290p could see a break-out back towards 265p.
HSBC profits jump as economic outlook improves
HSBC said profits jumped higher in the first quarter of 2021 as a fall in revenue was offset by a release of funds set aside for bad loans and that it may pay a dividend later this year after the economic outlook improved.
The bank said revenue was down 5% in the period at $13 billion, mainly thanks to lower interest rates. However, reported pretax profit jumped 79% to $5.8 billion in the quarter whilst reported profit after tax was up 82% to $4.6 billion after both were boosted by the release of funds previously set aside for bad loans during the pandemic.
HSBC said all regions were profitable during the quarter thanks to lower than expected credit losses and improving economic outlook. The bank, which makes most of its money in Asia, said its UK arm generated over $1 billion in quarterly pretax profits after $400 million of money set aside was released.
‘We had a good start to the year in support of our customers, while achieving materially enhanced returns for our shareholders. I am pleased with our revenue and cost performance, but particularly with our significantly lower expected credit losses. Global Banking and Markets had a good quarter, and we saw solid business growth in strategic areas, including Asia Wealth and trade finance, and mortgages in Hong Kong and the UK. We also strengthened our lending pipelines in our retail and wholesale businesses,’ said chief executive Noel Quinn.
‘The economic outlook has improved, although uncertainties remain. We carry good momentum into the second quarter, while maintaining conservative positions on capital, funding, liquidity and credit,’ he added.
HSBC said it now expects credit losses in 2021 to be below the medium-term range of 30bps to 40bps of average loans that was outlined earlier this year. The bank said it expects to deliver mid-single digit growth in lending this year.
However, HSBC warned its guidance depends how quickly countries can reopen their economies and make progress with their vaccination programmes and noted that some will do this faster than others.
The bank had already told investors not to expect quarterly dividends this year but said it is considering making an interim payout when it releases its half-year results in August.
HSBC shares were trading 0.6% higher in early trade at 425.1.
Whitbread expects strong recovery as restrictions are lifted
Whitbread said it expects a ‘significant bounce in leisure demand’ when restaurants and hotels can operate without restrictions this summer after the pandemic caused sales to plunge by more than 70% and pushed the company deep into the red.
Revenue plummeted to £589.4 million in the year to February 25 from $2.07 billion the year before as its hotels and restaurants were both hit by restrictions during the year. It reported an adjusted Ebitdar loss of £194.9 million after swinging from a £752.7 million profit.
Revenue came in lower than the £630.2 million expected by analysts whilst the loss was larger than the £166.7 million forecast.
Its reported loss before tax at the bottom line came in at £1.00 billion, turning from a £280 million profit the year before.
‘The last financial year was one of the most challenging in our 279 year history, as we operated under significant COVID restrictions which had many implications for our businesses, our customers and our people,’ said chief executive Alison Brittain.
The company has struggled like the wider industry during the pandemic, but it has managed to outperform its peers and gain market share. Whitbread is hoping it can start to get back on its feet as restrictions are eased this year. Restaurants should be able to fully open from May 17 while hotels should benefit as travel rules are relaxed.
‘The vaccination programme in the UK means we can look forward to the planned relaxation of government restrictions as we move into summer, with the first major milestone being the return of leisure guests to our hotels, and the full reopening of restaurants from 17 May. We expect a significant bounce in leisure demand in our tourist locations during the summer, followed by a gradual recovery in business and event-driven leisure demand,’ said Brittain.
Whitbread said it intends to invest £350 million in the new financial year and open 2,000 to 3,000 new rooms in the UK and another 2,000 rooms in Germany. It is also continuing to make the business leaner by targeting £100 million worth of cost-savings this year.
Whitbread shares were trading 2.8% lower in early trade at 3329.5.
AVEVA Group makes strong recovery in second half
AVEVA said it delivered strong revenue growth during the second half of its financial year to the end of March, allowing it to counter a significant drop during the first when its business was severely disrupted by the pandemic.
The engineering and industrial software maker said it delivered double-digit revenue growth in the second half on a standalone organic constant currency basis. This means it will report broadly flat revenue year-on-year, in line with its guidance.
AVEVA also benefited from the addition of its acquisition of OSIsoft on March 19, which is expected to accelerate the company’s digital transformation plan for its industrial business. OSIsoft reported mid-to-high single digit revenue growth on an organic constant currency basis during the financial year.
‘Both elements of the combined group responded flexibly to the challenges posed by COVID-19, growing combined pro forma revenue for the enlarged group by a low single digit percentage on an organic constant currency basis, while achieving strong growth in subscription revenue and increasing operating margins,’ said AVEVA.
AVEVA plans to release full year results on May 25.
AVEVA shares were trading 4.7% lower in early trade at 3744.5.
PZ Cussons delivers broad growth thanks to core brands
PZ Cussons delivered solid topline growth during the third quarter of its financial year thanks to a strong performance from its ‘Must Win’ brands like Sanctuary Spa, Original Source and Cussons Baby.
Revenue rose 4.7% in the three months to February 27 to £145.3 million as income grew across all regions at constant currency. Europe and the Americas was up 8.7%, Asia Pacific grew 2.6%, and Africa was up by 3.2%. However, taking foreign exchange movements into account, overall revenue growth only came in at 0.1% as Africa dragged down its results.
PZ Cussons said Carex in the UK and Morning Fresh in Australia were among the products to perform well during the period. Sanctuary Spa delivered double-digit revenue growth as sales in-store and online soared. Original Source sales returned to growth, and Cussons Baby performed well in Indonesia and Nigeria.
The company said uncertainty and volatility remains in the market but that it remains on track to meet its full year expectations.
‘In the final quarter of this current financial year, as some of our brands come up against strong levels of demand in the base period, we intend to continue increasing investment behind building our brands and capabilities, to maintain momentum as we move to more normal comparatives,’ aid chief executive Jonathan Myers.
PZ Cussons shares were trading 0.9% higher in early trade at 271.0.
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