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LONDON MARKET PRE-OPEN: BP Slashes Dividend Amid Loss; AA Gets Bids

Tue, 4th Aug 2020 07:52

(Alliance News) - Stock prices in London are seen opening flat on Tuesday following a strong close on Wall Street, with investors cheered by forecast-beating US PMI data.

In early company news, BP followed in the footsteps of rival Royal Dutch Shell in cutting its dividend, after the UK oil major swung to an interim loss. Diageo reported a match of two halves for financial 2020, as the coronavirus hurt sales but the brewer and distiller still declared a dividend.

IG futures indicate the FTSE 100 index is to open 2.25 points higher at 6,035.10. The blue-chip index closed up 135.09 points, or 2.3%, at 6,032.85 on Monday.

However, while there are small signs of a slowdown in infections in key US states, the spread of the coronavirus and the reintroduction of strict containment measures continue to be overwhelming factors keeping equities from extending gains.

BP halved its quarterly dividend as the oil major grappled with challenging trading conditions in oil and gas markets brought about the coronavirus pandemic.

The oil producer said the Covid-19 pandemic continues to create a volatile and challenging trading environment.

Separately, BP set out its strategy for the next decade of delivery towards net-zero ambitions. Within 10 years, the energy company aims to have increased its annual low carbon investment 10-fold to around USD5 billion a year, building out an integrated portfolio of low-carbon technologies, including renewables and bioenergy. Over the same period, BP's oil and gas production is expected to reduce by at least one million barrels of oil equivalent a day, or 40%, from 2019 levels, it added.

For the half-year ended June 30, BP swung to a replacement cost loss of USD18.29 billion from a profit of USD3.78 billion a year before. It reported an underlying replacement cost loss of USD5.89 billion from a profit of USD5.17 billion.

The loss for the second quarter attributable to BP shareholders was USD16.8 billion.

BP declared a quarterly dividend of 5.25 US cents per share, down 50% from 10.50 cents per share for the previous quarter. BP said the decision is aligned with its new distribution policy.

Looking to the third quarter of 2020, BP expects higher product demand, but still significantly below last year's levels. The company also expects significant continued pressure on industry refining margins into the third quarter.

"These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to reimagine energy and reinvent BP. In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact. Beneath these, however, our performance remained resilient, with good cash flow and - most importantly - safe and reliable operations," said Chief Executive Bernard Looney.

Johnnie Walker scotch-maker Diageo said it put in a consistent first-half performance, but business was significantly dented by Covid-19 in the second half, hurting the distiller's annual performance.

For the financial year ended June 30, Diageo reported an 8.3% drop in sales of GBP17.70 billion from GBP19.29 billion in financial 2019, and net sales of GBP11.75 billion, down from GBP12.87 billion. Pretax profit fell 52% to GBP2.04 billion from GBP4.24 billion.

Diageo said organic net sales were down 8.4%, with growth in North America more than offset by declines in all other regions. According to company compiled consensus for financial 2020, it was expected to post a fall in organic net sales of 7.3%. Organic volumes were down 11%.

Organic operating profit was down 14.4%, hurt by volume declines, cost inflation and unabsorbed fixed costs. Consensus had expected organic operating profit to fall 13.6%.

Diageo raised its full-year dividend 1.9% to 69.9 pence from 68.6p.

Looking ahead, Diago said that, due to the continued uncertainty caused by the ongoing Covid-19 pandemic, it is not able to provide specific financial guidance.

"Fiscal 20 was a year of two halves: after good, consistent performance in the first half of fiscal 20, the outbreak of Covid-19 presented significant challenges for our business, impacting the full-year performance. Through these challenging times we have acted quickly to protect our people and our business, and to support our customers, partners and communities. While the trajectory of the recovery is uncertain, with volatility expected to continue into fiscal 21, I am confident in our strategy, the resilience of our business and am very proud of the way our people have responded. We are well-positioned to emerge stronger," said Chief Executive Ivan Menezes.

easyJet said its third-quarter performance was in line with expectations, ending the period with a re-start to flying.

Total group revenue for the quarter ending June 30, was GBP7 million, from GBP1.59 billion in the third quarter last year. easyJet swung to a pretax loss of GBP324.5 million from a GBP174.2 million profit.

The fleet was fully grounded on March 30 due to the Covid-19 pandemic. Having re-started flying on 15 June, easyJet carried 117,000 passengers with a total capacity of 132,000 seats in the remaining two weeks of the quarter. The initial schedule comprised only 10 lines of flying and delivered a load factor of 88.9%, it said.

Looking ahead, easyJet expects to fly 40% of planned capacity for the fourth quarter.

"I am really encouraged that we have seen higher than expected levels of demand with load factor of 84% in July with destinations like Faro and Nice remaining popular with customers. Our bookings for the remainder of the summer are performing better than expected and as a result we have decided to expand our schedule over the fourth quarter to fly 40% of capacity. This increased flying will allow us to connect even more customers to family or friends and to take the breaks they have worked hard for," said CEO Johan Lundgren.

Roadside breakdown assistance provider AA PLC confirmed a report in the Times newspaper that it has attracted bid interest from US-based private equity firms.

AA said that as part of talks for a potential refinancing, it has been approached by jointly by Centerbridge Partners Europe and TowerBrook Capital Partners and also separately by Platinum Equity Advisors and Warburg Pincus International. AA said the possible offers would be in cash and would involve significant new equity being injected to pay down AA's huge debt pile.

AA provided no other details on the approaches, but the Times had reported that one of the bidders made a potential offer of 40 pence a share, equating to a market value of about GBP250 million, or about GBP2.9 billion including AA's GBP2.65 billion of debt. Shares in AA closed at 25.00p each in London on Monday, valuing the company's equity at GBP155.2 million.

AA also said it is considering an equity raise among its potential refinancing options.

In the US on Monday, Wall Street ended higher, with the Dow Jones Industrial Average up 0.9%, S&P 500 up 0.7% and Nasdaq Composite up 1.5%.

Sentiment was lifted by figures showing the US manufacturing sector expanded last month at its fastest pace since March last year, which followed strong factory readings from China and Europe.

Attention is now on Washington, where Democrats and Republicans are battling over a new package to save the US economy from the damage caused the pandemic.

The Japanese Nikkei 225 index closed up 1.7% on Tuesday. In China, the Shanghai Composite is down 0.1%, while the Hang Seng index in Hong Kong is up 0.8%.

The pound was quoted at USD1.3065 early Tuesday, firm from USD1.3041 at the London equities close Monday.

Pharmaceutical companies should stockpile six weeks' worth of drugs to guard against disruption at the end of the Brexit transition period, the UK government has warned.

The Department of Health & Social Care has written to medicine suppliers advising them to make boosting their reserves a priority.

The letter, published online on Monday, reiterates that ministers will not be asking for an extension to the transition period past December 31, despite the coronavirus pandemic. There are concerns that the Covid-19 crisis has led to a dwindling of some medical stocks and that a disorderly exit without a trade deal could cause significant disruption.

The euro was quoted at USD1.1767, up from USD1.1737. Against the yen, the dollar was trading at JPY106.11, soft from JPY106.19.

Brent oil was quoted at USD43.83 a barrel on Tuesday morning, lower from USD44.11 late Monday. Gold was priced at USD1,974.00 an ounce, firm from USD1,971.10.

Tuesday's economic events calendar has eurozone producer prices at 1000 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

Copyright 2020 Alliance News Limited. All Rights Reserved.

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