FTSE slips on oil stocks, and Ferguson puts dividends and buybacks on hold

“Despite the damage done to their respective share prices in recent weeks, BP and Royal Dutch Shell still command a big weighting in the FTSE 100 and weakness in their respective share prices helps put index on the back foot,” says AJ Bell Investment Director Russ Mould.

“Plumbing products outfit Ferguson and packaging firm Smurfit Kappa didn’t help matters by becoming the latest constituents to take dividends off the table.

“BP and Shell fell as the apparent conclusion of a spectacularly ill-timed if ultimately short-lived price war in the crude oil market has done little to arrest the slide in the black stuff, with Saudi Arabia offering discounted prices to Asian customers according to reports.

“In any case, the significant production cuts agreed by OPEC and its affiliates still fall a long way short of matching the drop in demand caused by global lockdown conditions.

“Other European markets were also on the back foot as investors weighed the devastating impact on the economy of measures introduced to contain the coronavirus and a poor performance by Asian stocks overnight.

“While President Trump’s decision to withdraw funding from the WHO raises doubts about the likelihood of a global co-ordinated effort to tackle the pandemic and its wider impact.”

Ferguson

“The coronavirus crisis has put everything else in the shadows for now but today’s update from FTSE 100 plumbing products firm Ferguson reflects a potentially concerning trend at the top end of the UK market.

“Several of the FTSE’s premier constituents have departed in recent years – notable examples include technology firm ARM and pay TV firm Sky which were acquired by overseas bidders – and shareholders just managed to divert Unilever’s plan to move its listing to the Netherlands in 2018.

“Ferguson’s proposal for a potential phased shift in its primary listing to the US, previously it had planned to do this immediately, could still eventually deprive London of another leading player in its field.

“There is logic to this decision with the demerger of its UK business apparently still on track (subject to a return to more normal market conditions later in the year) but this will be of limited comfort to institutions whose mandates won’t allow them to invest in the shares if they are primarily traded in the US.

“First the company must deal with the disruption to its business caused by coronavirus and it has taken the seemingly inevitable step of putting buybacks and dividends on hold.

“Companies seem to have developed a pretty consistent playbook when updating the market in the current crisis. Explain how they are protecting customers and staff, update on trading, withdraw guidance, cancel or defer any distributions to shareholders and outline the balance sheet position (painting it in as favourable a light as possible).

“And Ferguson follows this to the letter, even if the majority of its branches in the US remain open for now. This seems a prudent decision given disruption has increased since the end of March and it feels like worse could be coming down the pipe.”

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