Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

BP Sees Profits Slow; Whitbread Warns On Outlook, Tech Sector Slides

Published 30/04/2019, 08:38
Updated 03/08/2021, 16:15

It’s been a fairly weak start for markets in Europe as investors absorb another set of disappointing economic numbers out of China, and a slowdown in ad sales growth for Google owner Alphabet (NASDAQ:GOOGL), with the tech sector slipping sharply.

In terms of the macro picture the latest China manufacturing PMI numbers for April showed a slowdown from the pickup we saw in March. The recovery in the March data raised speculation that the Chinese economy was starting to show signs of recovery in the wake of the sharp slowdown that we saw at the end of last year.

This may well have been premature given that the rebound in March could merely have been the result of work backlogs being recovered after the Chinese New Year shutdown. The fact that economic activity has slipped back in April would appear to suggest that the Chinese recovery may well take longer than expected, and it is premature to hang out the bunting for a Chinese led global recovery in economic activity, over the rest of the year.

Having seen sector peers Total in France and Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) disappoint on the profits front last week, there was some concern that the higher costs being experienced by its rivals could translate into a similar problem for BP (LON:BP) this morning when they reported their latest numbers for Q1.

Last year BP absorbed the shale assets of BHP Billiton (LON:BHPB) into its business for the sum of $10bn which would have been revenue cost neutral if oil prices had stayed above $80 a barrel. This, of course didn’t happen and as such given its already high debt levels could have placed extra strain on its costs.

As a result of lower oil prices this quarter replacement cost profits for Q1 fell slightly from the same period a year ago, coming in at $2.36bn.

Upstream production excluding Rosneft showed an increase from a year ago, largely as a result of the BHP acquisition, while production costs actually fell 3.9%. Compared to Q4 production was quite a bit lower due to various stoppages in Q1 due to bad weather and maintenance shutdowns.

As a result of these lower costs, and higher production output due to its BHP acquisition, BP was able to boost its cash flow, however its net debt still remains above its gearing target of 20-30% at 30.4%, as net debt rose to $45bn from $39.3bn a year ago.

Now shorn of its Costa Coffee chain, Whitbread (LON:WTB) now has to stand or fall by the performance of its Premier Inn hotel brand, however it still has the luxury of having a good proportion of the proceeds of the £3.9bn, it received from Coca Cola burning a hole in its pocket. Today’s numbers ought to be an open goal for the business given all the reports that UK consumers are staying at home due to Brexit uncertainty.

It is therefore rather puzzling to hear Whitbread CEO Allison Brittain give such a downbeat assessment of the outlook, though it is perhaps understandable given that Q4 saw sentiment and business confidence slip back, and revenue per room saw a decline of 4.4%. This down beat assessment has seen the shares slip back sharply on the open, towards its 200 day MA, and to levels last seen in January.

This could be a case of merely lowering market expectations, against a backdrop of a 1% decline in total occupancy rates, however the company still remains on course to boost room capacity by another 3,000 to 4,000 rooms, from the current 76,000, so the future may not be as bleak as management might be looking to paint.

Revenues showed a rise of 2.1% to £2.05bn with underlying profit before tax rising to £438m, management have said they intend to return up to £2.5bn of the Costa proceeds to shareholders.

Money manager St. James Place saw funds under management rise to £103.5bn in Q1 with gross inflows of £3.61bn.

Standard Chartered (LON:STAN) Bank shares have leapt to their highest levels since August last year on the back of the announcement of a $1bn share buyback plan and a 10% rise in statutory profits for Q1 of $1.2bn, reversing the loss of $860m that we saw at the end of Q4.

US markets look set to open lower after the latest numbers from Google parent company Alphabet showed a sharp decline in advertising revenue in Q1. Profits were down by 29% but still fairly decent at $6.7bn, with a fine from the EU taking out $1.7bn from the numbers, while revenues rose to $36.3bn.

In terms of ad sales there was a significant slowdown in the pace of revenue growth which slowed to its lowest for over two years, rising 15.31%, and this led to revenues missing market expectations. This could merely be down to the law of diminishing returns, however it could speak to a wider slowdown in advertising more broadly, and this could well see the shares open sharply lower later today.

We’ve also got the latest numbers from Apple (NASDAQ:AAPL) later this evening, and the main focus apart from its sales numbers is how much money it will start spending as it ramps up its services division, as it looks to take on the likes of Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN), as well as Disney. It certainly has much deeper pockets than its rivals, however its core business still remains handset sales, and the recovery we’ve seen in the past few weeks has taken the share price back to within touching distance of the $1trn market capitalisation, once more.

Even Q1’s downgraded forecasts still showed revenues of $84.3bn despite weaker demand for its iPhones. Now that the company no longer provides a breakdown of handset and tablet sales it is becoming harder to detect whether sales growth in this market has peaked and is now a sustained move lower.

Services may well be able to take up some of the slack and has been doing so consistently for several quarters, and should continue to do so when Apple+ is added in the autumn. For this Q2 revenues are expected to be much lower between $55bn to $59bn, with a decline in margins after the company decided to adjust its prices lower to account for currency fluctuations in certain countries.

Dow Jones is expected to open unchanged at 26,554

S&P500 is expected to open 5 points lower at 2,938

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Article

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.