BP beats expectations amid windfall tax calls, Ocado still lacking profit, and Hong Kong markets dip on new Covid restriction fears

BP

“BP followed Shell by reporting bumper profits but both companies probably wished the timing didn’t coincide with the rise in the UK energy price cap which piles pressure on households already facing a cost of living crisis,” says Russ Mould, Investment Director at AJ Bell.

“The UK Government has ruled out a windfall tax for the oil and gas sector for now, but the threat of a legislative intervention hangs in the air given the contrast between voters struggling to heat their homes and two of Britain’s biggest companies announcing such strong results and billions in giveaways to shareholders.

“BP’s earnings beat estimates to chalk up its best performance since 2014, when oil last hit $100 per barrel, as higher commodity prices helped supercharge its returns.

“The company, which Bernard Looney recently described as a ‘cash machine’, looks set to make larger withdrawals from this machine in the coming years as it invests in areas like hydrogen and renewables to stay ahead of the transition away from fossil fuels.

“The fact that a large portion of this investment will be concentrated in the UK could be seen as an attempt to head off the calls for a one-off levy on profits.

“What will be interesting to watch, if oil prices remain elevated for an extended period of time, is whether there might be some mission creep in BP’s move to decarbonise as the economics of oil and gas projects become just too attractive to ignore.”

Ocado

“Ocado has developed a reputation for being all talk and no profit, and its latest full year results show a continuation of negative earnings at a group level.

“To its credit, Ocado has made strategic progress over the past year. More customer fulfilment centres have been opened and its joint venture with Marks & Spencer is a major success.

“Furthermore, it has developed new technology that will let customers go live on its systems quicker, at a lower cost, and potentially with better returns on the money spent.

“However, there are plenty of negative factors, with one standing out above all others. Covid showed that grocery companies have no choice but to build a state-of-the-art online ordering and fulfilment service, yet Ocado has yet to capitalise on this once in a lifetime opportunity by signing up a swathe of new customers.

“Ocado needs to show off its capabilities, yet its track record has been blemished by two fires at its fulfilment centres in recent years after its robots collided, and an ongoing legal battle with AutoStore around alleged patent infringement.

“As we’ve seen in recent years, this is very much a waiting game. Years into the future, Ocado could be sitting pretty, lapping up a healthy stream of cash from partners using its technology. But for now, it’s all about spending to help set up operations and to make its technology as efficient and clever as possible. Its capital expenditure represents a big chunk of revenue, and it is growing fast, unlike its sales.

“Investors are getting tired of hanging around for the big earnings breakthrough and its share price has more than halved over the past 12 months.”

Markets

“Talk of Hong Kong preparing to reintroduce strict social distancing rules amid a new Covid flare-up has spooked investors in Asia, with the Hang Seng index falling 1%. It was the outlier among an otherwise positive day for markets across Europe and Asia, including a 0.5% rise in the FTSE 100 to 7,611.

“The UK market was driven by miners, oil producers, financials and utilities, helped by well-received figures from BP.

“Recently promoted to the FTSE 100, Airtel Africa sank by 10% after a chunk of shares were sold by big investors at a discount to last night’s closing price.

“Inflation figures from the US on Thursday will be a major influence on the direction of markets as the figures will be digested by the Federal Reserve in its next decision on whether to raise interest rates or not. With expectations that inflationary pressures are going to get worse in the near-term, markets could get jittery as we approach the data release.”

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