Weekly stock market round-up
Barclays reported results this week, and provisions for bad debts blew a big hole in profits.
Overall, bad debts rose by 29%, but at Barclays Capital, which trades in bonds and other ‘fixed-income’ securities, they tripled. However, the news was not all bad. The dividend rose by 10% and profits were in line with forecasts. The results reinforce our conviction that the entire banking sector is in much better shape than current share prices suggest.
Oil giants BP and Shell continue to be plagued by doubts about whether they can find enough new reserves to replace what they produce each year. Shell only managed to replace last year’s output by buying Enterprise Oil, and is distancing itself from production growth targets set a couple of years ago. BP, which shot itself in the foot last year by downgrading its own growth targets three times, has a more radical solution. It’s making a £4.1bn investment in a joint venture in Russia. This will substantially boost its reserves and production, but doing business in the country is risky. BP thinks it has learned enough from past mistakes to manage the risks, and the share price reaction suggests the market is prepared to give it the benefit of the doubt.
Cable & Wireless (C&W) has rejected a takeover approach from Pacific Century Cyberworks, the company that bought Hongkong Telecom from C&W in 2000. But given the company’s bombed-out share price, more approaches are likely. C&W is not alone; other companies facing takeovers include IG Group, the spread-betting company that founder and major Conservative Party donor Stuart Wheeler has put up for sale, and PizzaExpress, the restaurant group, which posted disappointing results this week.
British Airways reported unexpectedly strong third quarter profits, helped by deep cost cutting, but warned that a war in the Gulf will put paid to any hope of making a profit over the full year. The company said it is fighting back against low-cost carriers in Europe, with more internet-only fares, but its longer-haul routes (especially across the Atlantic) are still struggling.
Invensys, the engineering group formed by the merger of BTR and Siebe, saw its share price fall by a quarter this week amid concerns about the weaker dollar. Invensys earns most of its profits in the US, but the slide in the US currency means those profits will translate into fewer pounds. And shareholders in resources firms like Rio Tinto, Anglo American, BP and BHP Billiton should watch out for dividend cuts for the same reason – the companies all use the dollar as their internal currency. Rio Tinto, for instance, raised its dollar dividend by 2%, but its sterling value fell by 10%.
