LONDON MARKET OPEN: BP Leads Shares Lower After Earnings Miss

LONDON (Alliance News) - Shares opened mostly lower in London Tuesday, with BP shares under selling pressure after the company reported an underlying replacement cost profit that was way below analysts expectations for the last quarter of 2015, causing its underlying profit for the full year to more than halve.

Meanwhile, J Sainsbury and Home Retail Group said they have reached an agreement on the terms of a possible offer for Home Retail, just before the expected deadline later in the day at 1700 GMT.

The FTSE 100 index was down 0.8% at 6,010.00 points, the FTSE 250 down 0.2% at 16,450.10, and the AIM All-Share flat at 696.14. In Europe, the CAC 40 in Paris was down 0.5% and the DAX 30 in Frankfurt down 0.3%.

Shares in BP were down 5.3%, the worst blue-chip performer. The oil giant said it made an underlying cost replacement profit of USD196.0 million in the fourth quarter of 2015, below the USD730.0 million analysts were expecting, according to a market consensus provided by BP.

Replacement cost profit is a standard measure used in the oil industry that takes into account the price of oil, and that USD196.0 million underlying profit is down from USD2.23 billion a year ago and down from USD1.81 billion in the third quarter of 2015.

BP reported a total replacement cost loss of USD2.23 billion in the last quarter of the year compared to a USD969.0 million loss a year earlier.

For the full year, BP reported an underlying replacement cost profit of USD5.90 billion, less than half the USD12.13 billion booked in 2014, but BP swung to an overall replacement cost loss of USD5.16 billion in 2015 from a USD8.07 billion profit a year earlier.

Revenue for the full year came in at USD222.89 billion, falling from USD353.56 billion a year earlier, as BP swung to a pretax loss of USD9.57 billion from a USD4.95 billion profit in 2014. BP, as expected, maintained its dividend for the year, announcing an interim dividend for the final quarter of the year of 10.0 cents per share.

BP was the first major London-listed oil and gas company to report its 2015 results, ahead of results from merger partners Royal Dutch Shell on Thursday and BG Group on Friday.

Royal Dutch Shell 'B' shares were down 1.7%, and BG Group was down 1.2%. Mid-cap Tullow Oil was at the bottom of the FTSE 250, down 4.0%, also hit by a downgrade to Hold from Buy by Liberum.

North Sea benchmark Brent crude slid back from its recent highs, quoted at USD33.83 a barrel Tuesday after the open, having hit a low of USD33.43 overnight. US benchmark West Texas Intermediate was at USD31.18 a barrel, slightly above the low of USD30.79 touched overnight.

"The [last week's] rally was merely based on 'hopes' that Saudi [Arabia] and Russia will agree to cut their oil output by about 5% each, which, if seen, would point to a much more balanced crude market. Those hopes could easily get dashed and traders are aware of that," said FOREX.com analyst Fawad Razaqzada.

Sainsbury's and Home Retail Group said they have reached an agreement on the terms of a possible offer for Home Retail, the Argos and Homebase owner, by the UK supermarket chain. The possible offer and proposed capital returns together imply a value of around 161.3p per Home Retail share, compared to their closing price Monday of 152.90p.

Shares in Sainsbury's were up 1.4% early Tuesday, while those of mid-cap Home Retail were down 1.6% at 150.40p.

BHP Billiton was down 3.3%, after Standard & Poor's lowered the FTSE 100 miner's credit rating to A from A+ after the market close on Monday.

Standard & Poor's said Monday that it recently lowered its price assumptions for iron ore, oil and copper, reflecting very challenging market conditions and increased uncertainty over commodity demand over the coming years.

In the FTSE 250, Ocado Group was the top performer, up 6.5%. The online grocery delivery service reported growth in profit in its recently ended financial year, as revenue was boosted by an increase in order volumes and active customers, despite the challenges posed by deflation in the average price of items across the UK grocery market.

Ocado said its pretax profit in the year ended November 29 grew to GBP11.9 million from GBP7.2 million the year before, as revenue rose 17% to GBP1.10 billion from GBP948.9 million.

Ocado added that it expects to sign "multiple deals in multiple territories" in the medium term for its international offering through Ocado Smart Platform. "Despite not signing a first deal in 2015, discussions with multiple potential international partners to adopt the Ocado Smart Platform solution continue and our confidence in signing a deal remains high," the company said.

TalkTalk Telecom Group was up 5.1%, after the telecommunications company said trading conditions have returned to normal following the cyber attack on the company in late 2015, with the group registering customer growth in January.

The company said its revenue growth for the third quarter to the end of December hit 1.8% year-on-year, though it said it saw a total net loss of customers of 101,000, with 95,000 of those attributed to the cyber attack which hit the group in October. The group said the cyber attack resulted in a negative trading impact of around GBP15.0 million and said it will book exceptional costs related to the attack of GBP40.0 million to GBP45.0 million.

TalkTalk said it expects to generate earnings before interest, taxation, depreciation and amortisation of GBP255.0 million to GBP265.0 million for the full 2016 financial year, down from GBP290.0 million a year earlier, though it expects to hike its final dividend by 15%.

CMC Markets chief market analyst Michael Hewson said the focus on the macroeconomic front Tuesday will be on the UK construction Purchasing Manager's Index reading at 0930 GMT, and unemployment data from Germany and the eurozone at 0855 GMT and 1000 GMT, respectively.

"The latest manufacturing PMI numbers out of the UK showed a modest pickup in economic activity in January, while December was also revised higher, which helped give the pound a modest boost. Today's construction numbers for January are expected to remain steady at 57.6, down slightly from 57.8 in December," said Hewson.

"In Europe it has been notable in recent months that headline unemployment has been falling quite sharply, and it is hoped that today's latest numbers reinforce that direction of travel. [Unemployment] is expected to remain steady at 10.5%, while Germany continues to outperform at with an unemployment rate set to remain at 6.3% in January, with another reduction of 7,000 in the underlying numbers," Hewson added.

Also in the economic calendar, the eurozone producer price index is due at 1000 GMT. In the US, the Redbook index is due at 1355 GMT.

Asian stocks ended mixed Tuesday, with the Japanese Nikkei 225 index down 0.6%, the Shanghai Composite up 2.3%, and the Hang Seng index in Hong Kong down 0.5%.

By Daniel Ruiz; danielruiz@alliancenews.com

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