Royal Dutch Shell misses expectations, and Capita investors breathe sigh of relief

“Investors aren’t happy with the size of the Federal Reserve’s interest rate cut and signals that it is not about to start a new monetary easing cycle.

“Markets reacted to the news with widespread declines in share prices. The FTSE 100 also suffered from a strengthening in the dollar, falling 0.3% to 7,564,” says Russ Mould, Investment Director at AJ Bell.

“Disappointing news from FTSE heavyweight Royal Dutch Shell added to pressure on the UK index and investors took some profits in gold miners following the recent rally."

Royal Dutch Shell

“Shell’s results would get a D- if they were being marked by a teacher. Despite all its efforts to streamline the business in recent years and make it run more efficiently, second quarter earnings missed expectations.

“A large drop in income and free cash flow, and a jump in gearing (net debt as a percentage of total capital), is disappointing. However, one must appreciate that Shell is at the mercy of commodity price movements and uncertain economic conditions.

“Most shareholders own the stock for its generous income stream and they may be disappointed that the dividend payment hasn’t grown. However this situation should change once Shell has finished a $25 billion share buyback, targeted for the end of 2020.

“Shell said in June that it would consider higher dividends once the buyback scheme had nearly completed. It has so far bought back $9.25bn of stock.”

Capita

“There is still a sense of trepidation when Capita releases a new set of financial results – will it contain more bad news, given how the company has disappointed so much in recent years?

“Fortunately investors can breathe a sigh of relief as there are no major nasties and chief executive Jon Lewis seems very upbeat in his commentary.

“The UK public sector has been a terrible place for outsourcing companies to do business in recent years thanks to a period of austerity.

“Boris Johnson seems more willing to spend money so it will be interesting to see if Capita and its peers benefit from a greater amount of government spending once we know how Brexit will play out.”

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