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BP shares slide on demand concerns, while silver surge subsides

BP slides to huge loss

US markets rebounded strongly yesterday, in turn helping Asia markets to a strong session as well, and this solid momentum has trickled through to European trade, as the positive vibe from yesterday’s rebound continues into early trade this morning.

European markets have picked up the baton this morning opening higher with the CAC40 outperforming.

It’s notable in early trade the best performers on the FTSE 100 are the likes of Whitbread, Intercontinental Hotels, as optimism grows that the UK’s vaccination programme will bring about an earlier easing of restrictions, which these particular brands will be able to take advantage of in the form of stay-at-home holidays. The worst performers include silver miner Fresnillo, which saw some decent gains yesterday, with the rest of the mining sector underperforming.

Also having a poor day is oil giant BP, who reported a full-year loss of $5.7bn, in what has been a tough year for big oil. In Q3 the company posted a profit of $86m thus avoiding the first quarterly back-to-back loss in more than a decade, but this still couldn’t disguise the challenges facing the industry. Net debt levels were up at $40.4bn at the end of Q3, still on the high side, though the company is looking to get this down to $35bn with the help of further divestments.  

We saw further progress on this front yesterday with the sale of a 20% stake in its Oman gas block programme for $2.6bn, which brought the net debt down in Q4 to £38.9bn, while replacement cost profits for Q4 came in at $115m. This was well short of estimates of $440.3m, a miss that highlights how large the challenge of turning this company round is likely to be, over the next five to ten years.

It’s the first day of trading for e-card and gift business Moonpig, as the company launches on the UK market, pricing at 350p, raising £491m, with investor interest helping to drive the shares up 29% on its debut. This is an impressive start for a company that is likely to face challenges that have seen the likes of PaperChase and Card Factory struggle, although both of those businesses have much higher costs due to their store footprint. Moonpig has certainly seen a big increase in demand as a result of the pandemic, however its last set of accounts showed that revenues for the end of last year to April 30th increased to £173.1m. This was a rise of 44% on the previous year. It stands to reason that the revenues for this year should come in much higher, however whether that’s enough to justify a valuation of £500m remains to be seen.   

Energy provider SSE maintained its outlook for the full-year with its latest Q3 trading update, saying it expects full year profits to be in the region of 85p to 90p a share, while intending to recommend a full year dividend of 80p a share. Covid related costs on full year profits are expected to be in the region of £200m.  

Virgin Money’s latest Q1 numbers have been well received by the markets, as the challenger bank reported an increase in customer deposits of 0.9% to £68.1bn. It was notable, though perhaps not surprising, that lending demand was slightly softer with mortgages down by 0.2% and personal lending down by 2%. Net interest margin was stable at 1.52%, with the focus on maintaining that over gaining new business. Expectations are for NIM to improve over the rest of the year as the economy improves and restrictions get eased.

It is being reported this morning that Deutsche Bank is likely to report a fairly decent set of Q4 numbers when it releases it numbers later this week, helped by a 20% rise in its fixed income trading unit.

US markets look set to continue where they left off last night with a positive start as investors continue to look past the recent GameStop driven volatility. Shares in the beleaguered video games retailer slid 31.5% yesterday, as frayed nerves started to stabilise, and calmer waters started to beckon. In the premarket the declines look set to continue as well.

It’s a big day for earnings with the latest Q4 numbers from Alphabet and Amazon after the close. When Alphabet reported in Q3 the company crushed expectations, as advertising revenues helped boost profits across the board. Group revenues came in at $46.17bn, with total advertising contributing $37.1bn of that. YouTube ads were also strong coming in at $5bn, a rise of 32%. CEO Sundar Pichai said that as from this upcoming quarter Alphabet would break out the numbers for its Google Cloud business in order to create more transparency.

Its “Other Bets” also saw good revenue gains with improvements in the likes of Waymo and Verily, though it still showed an operating loss of $1.1bn. As we come to the year-end these big tech giants have the appearance of being immune to any prospect of bad news. Even the announcement of another antitrust investigation into online collusion with Facebook hasn’t been enough to dull investor appetite for the likes of Alphabet, or other big tech stocks. This might change if the new US administration decides to look at measures to curb the power and influence of the likes these big tech behemoths as concerns over privacy issues stay front and centre. We also saw a host of US companies pull their ad spend at the beginning of January in the wake of the Capitol Hill unrest and this could well have impacted ad revenues towards the end of the quarter.

Amazon has also had a solid year, despite rising costs as a result of the pandemic. When Amazon reported in Q2, profits rose sharply as people shopped on line through lockdown. These increased sales still managed to outstrip rising costs of $4bn as a result of safeguarding measures for its staff, and expanding grocery delivery capacity. Management spent another $2bn in Q3 with sales coming in above expectations at $96.1bn. Amazon’s Web Services division has also been a key contributor seeing revenue growth of 29% the last two quarters, and accounting for 12.1% of total revenue.

Despite these record numbers Amazon’s share price has more or less traded sideways over the past six months, as concerns about its size and scale start to prompt questions about how the company might be regulated under a new US administration. For Q4 the company said it was setting aside another $4bn in costs to deal with the challenges facing its retail operations, with CEO Jeff Bezos saying the company has created over 400,000 new jobs this year alone.

With Prime Day sales and pre-Christmas shopping being within this quarter it would be a surprise if we didn’t see a good set of numbers this week, however AWS growth might well start to slow given the intense competition in this particular sector. The focus on sport appears to be key here with the various deals on tennis, Rugby Union and Premier League football attracting a host of new users. The addition of the Amazon Prime Video app on Sky Q boxes has no doubt helped here. In the UK Prime memberships saw another decent rise, with over 50% of UK households now Prime members.  Profits are expected to come in at $7.13 a share

The squeeze in silver prices appears to have been fairly short-lived and run out of steam, after yesterday’s brief pop above $30 an ounce. The move higher appears to have been a classic short squeeze, with the realisation that moving a stock that has over 100% of its free float out on loan is a much easier prospect than moving a market that has much more depth, and is also much more liquid. Silver prices are currently down sharply from yesterday’s peaks in what looks like a potential bull trap, and which could end in tears for some smaller retail traders that might have bought into the recent narrative. 

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