shell profit surprise rekindles bp doubts 1836442016

Shell’s surprise rise in headline quarterly profits is rightly impressing shareholders, whilst rival BP still has work to do.

Although the result is fairly noisy and even a little foggy (note the group excludes “identified items”) it’s still clear the benefit from rising BG volumes is kicking in, whilst a more adroit recalibration of expenses is also showing too.

On a related note, ‘forward guidance’ on capex plans continues, as the group continues its rolling programme of reducing the gradient of future capex, this time to the lower end of the prior range in 2017 (c. $25bn).

Maybe the quarter was a fortunate one for production write-off costs, which could pick up in H1.

In the near future investors might judge the group’s positive ‘exit’ activities—its disposal programme—more harshly. There’s a built in contradiction in Shell trying to sell $30bn in non-core assets into a low oil-price environment.

There’s ample room for the group to trip up on further bumps in the road, particularly on dividends.

Shell is currently sporting what could be best described as a ‘technically covered’ dividend, rather than a ‘technically uncovered’ one and it’s difficult to see how the group can avoid dipping into borrowings to temporarily maintain coverage at some point during the next 18 months.

But no one thinks a Shell pay-out crisis is brewing.

It still looks to have played its own particular hand better than many oil majors in the quarter, and CEO van Beurden’s “Dividend Statement” succeeded in avoiding all sensitive eggshells for now as well.

For BP, the £728m one-off accounting gain which flattered the upstream outcome, and downstream underlying pre-tax profit decline of 39% y/y to £1.4bn, make the verdict on its figures poorer than many City of expectations.

It’s an unfortunate disappointment from a group which in many ways is more solid than others of a similar size.

BP has, however, continued to demonstrate resilient cash-generative strength during the quarter which does not look fully priced into its stock, although to be sure, to an extent the discount is linked to low oil prices.

Still, BP’s long-term coverage profile easily looks more assured than its FTSE rival, with a range of 1.4-1.6 times not seen as a particularly punchy call in the City for the next three years.

BP stating that it remains on track to achieve organic free cash flow (net of Gulf of Mexico payments) with oil at $50bbl-$55bbl might be the strongest positive takeaway from its Q3 figures.

Shareholders however are judging BP based on recent performance against other super majors and have found the group wanting.

From a technical chart perspective, BP continues to look more attractive than Shell due to apparent potential for upside in the medium term.

However, a misstep on fundamentals is coinciding with the share’s reversal at a long-term resistance line at 486p (the shares tagged prices around there on August 2014 and May 2015).
Traders will be keen to see how the stock performs at the lower side of the resistance/support range closer to 461p.
If that is sustainably breached, BP’s hard-won victory, around a fortnight ago, over a descending trend that capped the stock for more than ten years, may turn out to be a false dawn.
More positively, the stock has respected a clear rising channel for most of the year.
Confluence with the declining trend and 461p support the case that the group’s cash generative strengths will continue to be appreciated in the medium term despite a disappointing quarter.

WEEKLY CHART

Please click image to enlarge

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.