Oil producers fire up the FTSE, Reckitt shares hit 11-year low on negative legal read-across, Heineken shares slump, Pearson’s lack of new buyback disappoints investors

“Energy producers gave the FTSE 100 a welcome boost at the start of the new trading week, with the index rising 0.8% to 8,350,” says Dan Coatsworth, Investment Analyst at AJ Bell.

“Shell and BP were among the biggest contributors to the index’s performance as oil prices nudged higher to $81.21 per barrel. Oil prices had been on a downward trend since early July, so finding price stability has offered some reassurance.

“Shell and BP will update the market this week, and both have already got bad news out of the way with recent earnings previews that detailed multi-billion-dollar write-downs.”

Reckitt

“Shares in Reckitt have slumped to their lowest level since January 2013 after negative read across from a court case in the US involving Abbott Laboratories. A court has ordered Abbott to pay $495 million over allegations it hid the risks around its premature infant formula.

“Reckitt’s shares have been severely depressed since March as the market worries about the scale of any potential liabilities if the company loses legal battles around the safety of its baby formula.

“A US court case has already awarded $60 million in damages to a mother who said her baby died after consuming Reckitt’s Enfamil baby formula. Several hundred similar claims have been in filed in US courts targeting Reckitt and Abbott.

“The more setbacks for either baby formula maker, the more complicated it becomes for Reckitt to sell its nutrition arm. Reckitt last week indicated it might be up for sale, saying it was considering all options for the business.

“Any potential buyer could be put off by the possibility of liabilities from the court cases, meaning the pressure is growing for Reckitt to find a way to ringfence a large amount of money in case it loses big time in the court battles.”

Heineken

“There was nothing refreshing about Heineken’s results as half-year operating profit growth missed estimates and it stomached an €874 million impairment charge on a Chinese investment.

“That’s the second time this year the brewer has left the market with a sour taste, having previously disappointed in February with a downbeat tone.

“Heineken might have raised its operating profit guidance, but investors didn’t like the sound of spending plans. It is going to ramp up investment in sales and marketing to put its brand front of mind for beer drinkers.

“The company benefits from having brand strength and that matters in a highly competitive market. What’s still uncertain is consumers’ capacity to spend big on discretionary items while interest rates stay high. While lots of people might enjoy a beer or two, they may have no choice but to cut back on these little luxuries if they remain under financial pressure.”

Pearson

“Investors are addicted to share buybacks, lapping up shares in companies which are using surplus cash to acquire stock. Generally, investors seem happy as long as the buyback announcements keep coming. Fail to commit to further buybacks and the market gets agitated.

“Pearson’s shares have gone into reverse after it said there were no plans to extend its share buyback programme. It also didn’t help that half-year profits have fallen and there are no upgrades to full-year earnings guidance. Investors want more, more, more; and with Pearson the status quo is simply not enough.

“That’s not a good look for a new chief executive trying to win over the market. Omar Abbosh has been running the business since the start of the year and has had enough time to look under the bonnet. So far, the market doesn’t seem blown away with his strategic plans.

“There is a strategy to deploy more AI services, such as serving up tailored information to students and being able to automate the answering of questions. Greater use of technology should lead to cost savings in time. What’s missing is something to really wow the market.”

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