LONDON MARKET COMMENT: FTSE 100 Slightly Up Supported By Oil Stocks

LONDON (Alliance News) - The FTSE 100 is trading sightly higher Thursday mid-morning, supported by oil stocks, with Royal Dutch Shell amid the best performers after it said its pretax profit fell as expected in the first quarter of 2015, but its current cost of supply earnings benefited from upstream divestment gains and a UK tax credit.

The blue-chip index is up 0.1% at 6,949.98, while the FTSE 250 is down 0.2% at 17,452.13. Meanwhile, the AIM All-Share is up 0.1% at 753.38.

Europe's main indices are taking back earlier losses, following heavy declines seen Wednesday, with the CAC 40 in Paris up 0.1% and the DAX 30 in Frankfurt up 0.3%. Wednesday, the French index ended down 2.5%, while the German closed down 3.1%.

Shell, which is in the process of acquiring BG Group, reported Thursday a pretax profit of USD5.83 billion in the first quarter of 2015, a significant fall from the USD8.54 billion in the same period a year earlier, as the company's upstream division was hit by lower oil prices and lower trading contributions, partially offset by an improved performance from the downstream division.

Shell's closely-watched current cost of supply earnings in the quarter reached USD4.8 billion in the first quarter of 2015, slightly up from USD4.5 billion in the same period a year earlier. However, Shell's current cost of supply earnings excluding divestment gains, tax credits and other items more than halved to USD3.2 billion from USD7.3 billion.

Analysts at Liberum said Shell's current cost of supply earnings excluding items of USD3.2 billion were well ahead of the consensus of USD2.4 billion.

Shell 'B' is up 1.0%, while its 'A' shares are up 0.7%. Other oil stocks also are higher, with BG Group and BP up 0.5%. FTSE 250-listed Premier Oil is up 1.8%, Cairn Energy is up 1.6%, Tullow Oil is up 0.7%, while SOCO International is up 0.4%.

Firm oil prices also are supporting energy stocks, with Brent oil up 0.7% on the day, trading at USD66.01 a barrel, while the West Texas Intermediate is nearing the USD60 mark, trading at USD59.18.

ITV is the worst performer in the FTSE 100, down 5.2%, after going ex-dividend.

International Consolidated Airlines Group shares are down 2.5%, even though it reported Thursday its first ever first-quarter operating profit, as all three of its airlines reported an improved performance. It was buoyed by the earlier timing of Easter and lower fuel prices, and it kept its guidance for the year as a whole.

Royal Bank Of Scotland, down 2.5%, also is amongst the biggest losers after it swung to a first-quarter net loss as revenue fell and operating expenses increased due to the costs of restructuring, litigation and conduct. The state-backed bank said it made a GBP446 million net loss in the three months ended March 31, compared with a net profit of GBP1.20 billion in the corresponding quarter of the prior year.

In the FTSE 250, Zoopla Property Group shares are 13% higher after it said it will buy Ulysses Enterprises, the operator of the uSwitch energy, telecoms and financial products comparison site for up to GBP190 million. Zoopla said it will pay GBP160 million initially on a cash-free, debt free basis, plus a performance-based earn-out of up to GBP30 million.

With the acquisition, which Numis analyst Gareth Davis calls "sensible" and expects to be "around 20% accretive in the first full year of ownership", Zoopla diversifies its business into the online price comparison market. Despite the potential competition, shares in MoneySupermarket.com are up 1.7%, after it reported a 25% rise in revenue in the first quarter.

On the flip side, Ophir Energy is down 11% at 143.7 pence after Kulczyk Investments sold its entire 8% holding in the oil and gas explorer at a discount. Kulczyk sold 56.6 million shares in Ophir for 140 pence per share, raising a total of 79.3 million.

RPS Group, down 9.2%, said its energy business has had a slower-than-expected start to the year as tough conditions in the oil market dragged on its performance. However, RPS also said in its update Thursday that it will pay NOK267 million, or around USD22.3 million, in cash to acquire Metier, an Oslo-based project management and training services provider.

Similarly, James Fisher & Sons is the amongst the biggest losers, down 8.0%, after it said its Marine Support, Specialist Technical and Tankships units have started 2015 in line, but its Oil Offshore arm has taken a hit from the weak conditions in the oil and gas market, with the company expecting a weaker first half due to one-off contract wins secured a year earlier.

Outside corporate news, investors are still digesting weak US GDP, up just by 0.2% in the first quarter against an expected 1.0% increase, and the Federal Reserve's statement Wednesday, in which the US central bank didn't rule out tightening interest rates in June, but analysts believe it will not raise interest rates until September.

"The Federal Open Market Committee was interestingly fairly in line with the expectation that it would remain data dependent and also noted that some of the recent shocks and data weakness were 'transitory' and appear likely to be temporary," says Hantec Markets analyst Richard Perry. "The market has taken this as a signal that whilst the data is not ready yet for a rate hike there is still even the possibility of a June tightening (although still rather unlikely and the expectation remains Q4)," writes Perry.

Oanda analyst Craig Erlam also believes a rate hike is more likely in September as a rebound in the economy in the second quarter should give the Fed comfort to do so. "If the slowdown in the first quarter proves not to be transitory or disinflation pressures grow, then we may have a problem, but until then I see no reason for the Fed not to raise rates this year," says Erlam.

US futures point to a lower opening, with the DJIA pointed down 0.4%, the S&P 500 down 0.3%, and the Nasdaq 100, down 0.5%.

Still in the corporate calendar Thursday, in the US, jobless claims are due at 1330 BST and the Chicago Purchasing Managers Index is at 1445 BST.

By Daniel Ruiz; danielruiz@alliancenews.com

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