FTSE’s February rebound continues and BP chalks up larger than expected loss

“After a decidedly downbeat end to a seemingly endless January, the FTSE 100 has more of a spring in its step in February, continuing yesterday’s rebound buoyed by gains in the US last night and Asia,” says AJ Bell Investment Director Russ Mould.

“Supporting a more positive mood was an apparent calming of the Reddit-inspired frenzy on markets as well as hopes for a vaccine-led exit from lockdown. On the other side of the coin weak results for index heavyweight BP and strength in sterling helped cap some of its gains for the FTSE relative to European indices.

“In the short-term a lot of attention will be across the Atlantic with more big US corporate names reporting – including Amazon and Google-owner Alphabet later today – and continuing focus on the progress of new President Joe Biden’s coronavirus relief package.

“Closer to home, apparently pigs do fly, well Moonpig did at least, with the greetings card website following on from Dr Martens’ big step forward on market debut to trade significantly higher after this morning’s float.”

BP

“There are two ways of looking at full year results from BP. On the one hand the pandemic’s hit to oil demand contributed to the kind of loss that the market just can’t ignore.

“However, the substantial loss largely reflected non-cash write downs to the value of its assets and there were some signs of tangible progress with its longer-term strategy.

“The divestment of oil and gas fields has helped reduce net debt, albeit still at quite high levels, and this will help with the transition away from fossil fuels as BP looks to its 2050 net zero carbon target.

“However, the company is stuck in a conundrum as oil and gas production pays the bills and, crucially, the dividend. Having already slashed the payout significantly in August 2020, shareholders would not take kindly to another dividend cut in the near-term.

“And yet production is at a four-year low, the company is not replacing the resources it is bringing to the surface and 2021 is off to a poor start.

“The refining business which has typically provided something of a hedge to lower oil prices, with cheaper crude boosting margins on refined products, has also suffered due to the broad-based nature of the Covid-led demand decline.

“Cash flow from its traditional assets will also be required to invest in areas like alternative energy, where BP will also face the problem of increasing asset prices and competition from other participants in the sector.”

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