Standard Chartered's first buyback in 20 years, BP beats expectations (again) and Whitbread in a sticky patch

“Weak Chinese manufacturing data put pressure on the mining sector and helped undermine hopes of a positive start for the FTSE 100 on Tuesday. “The modest decline in the index also followed weak first quarter numbers from Google-owner Alphabet in the US overnight,” says Russ Mould, Investment Director at AJ Bell.

Standard Chartered

“Even in a sector with its fair share of scandals over recent years, Standard Chartered’s chequered history stands out.

“Apparent sanction breaches, forex fixing, allegations of inappropriate behaviour by a senior executive, the list is worryingly long.

“However, today’s update could be a tentative step on the road to rehabilitation for the emerging markets bank as it looks to put legacy issues behind it under chief executive Bill Winters.

“Winters has been fire-fighting for nearly all of his four-year tenure thanks to this series of historic and live problems. Investors will be hoping the first quarter update is an indication of what he can do when he is able to focus on the day job.

“Profit comes in significantly ahead of expectations despite a modest decline in revenue. And tight control of costs means the company still achieved a positive ‘jaws’, or in other words income has outpaced operating expenses.

“A strong balance sheet enabled the company to unveil a $1bn share buyback, its first in two decades. As well as being a boon to shareholders, opting for a buyback over a special dividend could be a signal the board see the shares as particularly undervalued.

“In theory, the company should be able to generate better growth than its UK-listed peers as it benefits from an increasing number of people in developing economies accessing banking services.”

BP

“Oil major BP has developed a nice habit of beating expectations. Every set of quarterly numbers for 2018 came in ahead of forecasts and the first quarter of 2019 is the same.

“Sure, profit was lower year-on-year and quarter-on-quarter reflecting the lower oil prices at the start of the period, but its oil and gas trading performance was strong and operationally it managed to keep a lid on production outages.

“This underpinned a modest but still material 2.5% increase in the quarterly dividend. It is also testament to the sterling work chief executive Bob Dudley has done to turn BP into a leaner and meaner business since taking over in the wake the Gulf of Mexico oil spill.

“One area which may raise a few hackles in the market is a creeping increase in the company’s net debt. This increase in borrowing reflects the blockbuster acquisition of BHP’s US shale assets.

“While this deal was applauded in most quarters, shareholders will be wary of the company getting carried away given oil prices remain highly volatile and amid the threat of regulatory pressure driven by growing environmental activism.”

Whitbread

“A weak fourth quarter, a gloomy start to the new financial year and a cautious outlook isn’t a great situation to be in. It is understandable that Whitbread’s investors might be disappointed with the situation yet it isn’t reason to start panicking about the business.

“There is often fluctuating demand for hotel rooms and operators need to be flexible with pricing in order to keep occupancy levels as high as possible.

“Brexit uncertainty is clearly affecting demand, particularly from business travellers, yet that could only be a temporary phenomenon.

“Whitbread’s model of affordable rooms in a broad spread of locations should serve it well when consumer and business confidence starts to improve.

“Evident with the latest results is that the loss of Whitbread’s diversification blanket, namely selling the Costa coffee chain, has left the business extremely dependent on a single industry. Therefore you should expect the market to now scrutinise every part of its hotel operations rather than just looking at the headline figures for a broader leisure conglomerate.

“There is an argument to say that the UK hotel industry is already well-served so Whitbread’s focus may increasingly turn to making existing operations more efficient rather than aggressive roll-out of new rooms. Germany is less mature so that region has scope to sustain ongoing expansion.

“Whitbread needs to stay focused and find ways to cope with a weaker demand otherwise it could become a takeover target with a larger rival potentially waiting to pounce during moments of weakness.”

These articles are for information purposes only and are not a personal recommendation or advice.