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(Alliance News) - BP on Tuesday lifted its quarterly dividend and unveiled a USD1.4 billion share buyback, while dangling the prospect of more of both to shareholders.
The oil major swung to an underlying replacement cost profit for the second quarter of USD2.80 billion from a USD6.68 billion loss a year ago. It also marked an improvement from the first quarter of 2021, when it recorded profit of USD2.63 billion.
Profit was driven by higher oil prices and margins, offset by a lower result in gas marketing and trading
"Based on the underlying performance of our business, an improving outlook for the environment and confidence in our balance sheet, we are increasing our resilient dividend by 4% per ordinary share and in addition, we are commencing a buyback of USD1.4 billion from first half surplus cash flow," said Chief Executive Bernard Looney.
BP declared a dividend of 5.46 cents for the quarter, up 4.0% from 5.25 cents a year ago.
Operating cash flow was USD5.41 billion in the period, up from USD3.74 billion a year ago. BP said it generated surplus cash flow of USD700 million in the second quarter and USD2.4 billion in the first half after having reached its net debt target of USD35 billion.
The company's net debt stood at USD32.71 billion at June 30, down from USD40.92 billion a year ago.
Looney added: "On average at around USD60 per barrel, we expect to be able to deliver buybacks of around USD1.0 billion per quarter and to have capacity for an annual increase in the dividend per ordinary share of around 4%, through 2025."
Brent oil was trading at USD72.75 a barrel early Tuesday morning in London, down from USD73.58. After recovering from pandemic-induced lows, Brent has consistently traded above USD60 per barrel since early February 2021. Brent prices have risen 50% since 2021 began.
BP said oil demand is expected to recover in 2021, reaching pre-Covid levels sometime in the second half of 2022. The company's own upstream production will be higher in the third quarter than the second as seasonal maintenance work is completed and some major projects are ramped up, it said. Meanwhile, refining margins are expected to improve slightly amid the stronger demand.
"We remain focused on maintaining a resilient dividend within a cash balance point of around USD40 per barrel; strengthening our balance sheet - with net debt reduced for the fifth consecutive quarter; a disciplined approach to investment; and the execution of share buybacks with upside to higher prices," said Chief Financial Officer Murray Auchincloss.
BP shares were up 2.6% early Tuesday.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: marginally higher, up 2.48 points at 7,084.20
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Hang Seng: down 0.3% at 26,150.75
Nikkei 225: closed down 0.5% at 27,641.83
DJIA: closed down 97.31 points, or 0.3%, at 34,838.16
S&P 500: closed down 8.10 points, or 0.2%, at 4,387.16
Nasdaq Composite: closed up 8.39 points, or 0.1%, at 14,681.07
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EUR: soft at USD1.1875 (USD1.1880)
GBP: soft at USD1.3895 (USD1.3900)
USD: down at JPY109.14 (JPY109.30)
GOLD: down at USD1,808.81 per ounce (USD1,814.25)
OIL (Brent): down at USD72.71 a barrel (USD73.58)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Tuesday's Key Economic Events still to come
1100 CEST EU producer price index
1000 EDT US manufacturers' shipments, inventories & orders
1630 EDT US API weekly statistical bulletin
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Nicola Sturgeon is set to announce if Scotland will lift its coronavirus restrictions and move beyond the current Level 0 rules in place. Her statement on Tuesday afternoon will say whether or not most measures implemented north of the border as a result of the pandemic last March are to be lifted on Monday, August 9 as hoped. The Scottish first minister set the date in June, even before the move to Level 0 on July 19 which increased the numbers of people who could gather and extended the opening hours of hospitality. Other businesses such as soft play were finally allowed to reopen – however nightclubs are among those still closed ahead of Tuesday's statement in a virtual session of the Scottish Parliament. Sports stadia and concert venues may go back to being able to welcome full capacity crowds again for the first time in nearly 18 months if changes are approved.
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BROKER RATING CHANGES
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BERENBERG RAISES RIGHTMOVE TO 'HOLD' (SELL) - PRICE TARGET 710 (455) PENCE
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MORGAN STANLEY RAISES PLAYTECH TO 'EQUAL-WEIGHT' ('UNDERWEIGHT')
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COMPANIES - FTSE 100
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Precious metals miner Fresnillo posted a profit surge as metal prices improved in the first half of the year. Total revenue for the first half of 2021 was USD1.47 billion, up 39% on a year ago. Cost of sales rose at a slower pace, up 17% to USD860.1 million. This helped pretax profit to triple to USD445.4 million from USD127.9 million a year ago. The average realised silver price increased 57% from a year before to USD26.4 per ounce, while the average realised gold price rose 6.7% to USD1,789.2 per ounce. Gold was quoted at USD1,808.59 an ounce early Tuesday, lower than USD1,814.25 on Monday. Fresnillo declared an interim dividend of 9.90 cents per share. The miner said it remains to track to hit its full-year silver and gold production guidance. "We are assessing any potential impact that might result from the implementation of the new law restricting the ability to subcontract labour in Mexico. However, these new measures are not expected to materially impact second half production," Fresnillo noted.
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Standard Chartered reported "encouraging" first half results, with profit improved thanks to a credit release, and expects the momentum to continue into the second half. In the six months to June 30, the London-headquartered but Asia-focused lender recorded pretax profit of USD2.56 billion, up sharply from USD1.63 billion a year before. Aiding the profit boost was a sharp drop in the bank's credit provision, which turned into a USD51 million release in the first half compared to the USD1.58 billion provision booked last year. StanChart's operating income slipped 6% year on year to USD7.63 billion from USD8.10 billion. Net interest income fell 4% to USD3.38 billion from USD3.50 billion, while other income dropped 7% to USD4.24 billion from USD4.55 billion. The lender's net interest margin worsened to 1.22% from 1.40%. StanChart declared an interim dividend of 3 US cents and plans a USD250 million share buyback, which is expected to start "imminently".
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COMPANIES - FTSE 250
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Baked goods retailer Greggs swung back to profit in the first half of 2021 and reinstated its dividend. Total sales for the half-year that ended July 3 returned to pre-pandemic levels, at GBP546.2 million. This was up sharply on GBP300.6 million a year ago, and level with the result reported for the first half of 2019, of GBP546.3 million, being a completely coronavirus-free period. "Sales in the second quarter exceeded our expectations, delivering like-for-like sales growth versus the second quarter of 2019," it said. Pretax profit for the period was GBP55.5 million, swinging from a loss of GBP65.2 million a year ago and overtaking 2019's outturn of GBP36.7 million. Further, it now expects full-year profit to be "slightly ahead" of previous internal forecasts. Greggs declared an interim dividend of 15.0p per share, versus nothing a year ago. Greggs last paid a dividend in October 2019, after which the planned final dividend for 2019 was cancelled to help the firm weather the coronavirus crisis. "Whilst there are still significant uncertainties in the months ahead, we now have a strong cash position and additional financing facilities to draw on if required," it said.
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Direct Line Insurance reported an 11% rise in half-year pretax profit to GBP261.3 million from GBP236.4 million a year before, amid below-normal Motor claims and "benign" weather conditions. Combined operating ratio declined to 84.2% from 90.3% a year before, meaning underwriting profitability improved. Direct Line declared a 7.6 pence interim dividend, up 2.7% from a year before, and prepared to launch the GBP50 million second tranche of the GBP100 million share buyback programme that it announced back in March.
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COMPANIES - GLOBAL
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Sanofi has agreed to buy clinical-stage mRNA therapeutics company Translate Bio in a deal that could be worth USD3.2 billion. The Paris-based pharmaceuticals firm has entered into an agreement with the US's Translate Bio that will see Sanofi acquire all outstanding shares for USD38.00 per share, representing a total equity value of around USD3.2 billion. "Translate Bio adds an mRNA technology platform and strong capabilities to our research, further advancing our ability to explore the promise of this technology to develop both best-in-class vaccines and therapeutics," said Sanofi Chief Executive Paul Hudson. Translate Bio, based near Boston, Massachusetts, partnered with Sanofi in 2018 to develop mRNA vaccines and expanded this further in 2020 to address current and future infectious diseases. There are two ongoing mRNA vaccine clinical trials under the partnership including the Covid-19 vaccine phase 1/2 study.
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Tuesday's Shareholder Meetings
Syncona Ltd - AGM
Caffyns PLC - AGM
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By Tom Waite; thomaslwaite@alliancenews.com
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