LONDON MARKET PRE-OPEN: Shell lifts payout as quarterly earnings jump

(Alliance News) - Stocks in London are set for a higher start on Thursday, after a dovish US Federal Reserve meeting, with focus now switched to a bumper day for UK earnings.

Before the open, Royal Dutch Shell reported a quarterly earnings leap on improved commodity prices, lender NatWest retained its outlook as profit nearly doubled in the first quarter, and Smith & Nephew reinstated guidance after a good start to 2021.

IG says futures indicate the FTSE 100 index of large-caps to open up 15.03 points, or 0.2%, at 6,978.70 on Thursday. The FTSE 100 closed up 18.70 points, or 0.3%, at 6,963.67 on Wednesday.

"European markets look set to start the day higher on the back of last night's dovish Fed, as well as a positive Asia session," said Michael Hewson, chief market analyst at CMC Markets.

Temporary price jumps will not spook the Federal Reserve into pulling back on the stimulus it has pumped into the US economy during the Covid-19 pandemic, Chair Jerome Powell said on Wednesday.

He highlighted the commitment of the policy-setting Federal Open Market Committee to keep the US benchmark lending rate near zero, where it has been since the start of the crisis, and continue its massive bond buying program until employment recovers and inflation exceeds the two percent threshold "for some time".

Responding to concerns from notable economists and some investors that policymakers could let things get out of control, Powell snapped back: "We know our job."

The policy-setting Federal Open Market Committee left its benchmark rate unchanged in the range of 0.00% to 0.25%, as widely expected. The Fed also left its quantitative easing programme unchanged.

The dollar was lower across the board in the wake of the Fed announcement.

Sterling was quoted at USD1.3959 early Thursday, higher than USD1.3912 at the London equities close on Wednesday.

The euro traded at USD1.2126, rising from USD1.2100 late Wednesday. Against the yen, the dollar slipped to JPY108.75 from JPY108.85.

In China, the Shanghai Composite closed up 0.5%, while the Hang Seng index in Hong Kong was up 0.8%. The S&P/ASX 200 in Sydney ended 0.3% higher. Markets in Japan were shut for the Showa Day holiday.

CMC's Hewson added: "The positive mood was also helped by positive earnings announcements, from the likes of Apple and Facebook, who both blew through market expectations, on revenues and profits."

Apple shares rose 2.4% after-hours as the iPhone maker reported doubled earnings for the second quarter of its financial year, driven by record revenue through sharp growth in iPhone and Mac sales.

For the three months ended March 27, the Cupertino, California-based tech stock posted net income of USD23.68 billion, more than doubled from USD11.25 billion the same period the year before. Total net sales grew 54% year-on-year to USD89.58 billion from USD58.31 billion the prior year, driven by a 66% rise in iPhone sales to USD47.94 billion, as well as a 70% increase in Mac sales to USD9.10 billion, the latter reaching an all-time high.

Facebook shares surged an even-greater 6.2% post-market as earnings jumped on strong advertising revenue. For the first quarter ended March 31, Facebook posted revenue of USD26.17 billion, up 48% from USD17.74 billion last year and net income was USD9.50 billion, almost double from USD4.90 billion.

Prior to the Apple and Facebook results, Wall Street ended in the red, with the Dow Jones Industrial Average ending down 0.5%, the S&P 500 down 0.1% and Nasdaq Composite closing 0.3% lower.

In early UK company news, Royal Dutch Shell reported a larger-than-expected jump in quarterly earnings on improved commodity prices.

Shell's adjusted earnings jumped to USD3.23 billion from USD2.86 billion - ahead of company-compiled consensus at USD3.13 billion - as it swung to a profit attributable to shareholders of USD5.66 billion from a loss of USD24 million year-on-year.

The improved earnings print reflects higher realised oil and liquefied natural gas prices, Shell said.

At the end of the quarter, net debt stood at USD71.3 billion, down from USD75.4 billion at the end of 2020 as the company progresses towards the USD65 billion target. Once this is achieved, Shell plans to increase shareholder distributions to 20% to 30% of cash flow from operations.

The dividend for the quarter was USD0.1735 per share, up 4% on the previous quarter.

"As previously announced, the first quarter 2021 dividend per share has been increased by around 4%, in line with our progressive dividend policy. We have reduced net debt by more than USD4 billion this quarter, progressing towards the USD65 billion milestone to increase shareholder distributions. Our competitive and robust financial performance provides the platform to achieve the goals of our Powering Progress strategy," said Chief Executive Ben van Beurden.

Peer BP, which reported on Tuesday, said it would buyback USD500 million of shares in the second quarter after reducing net debt to USD33.31 billion - less than half Shell's current total.

NatWest reported a jump in quarterly profit, even as total income fell.

The UK state-back bank's pretax profit surged to GBP946 million for the first quarter of 2021 from GBP519 million a year ago, on total income of GBP2.66 billion, down 16% from GBP3.16 billion.

Natwest recorded a net impairment release of GBP102 million in the first quarter, compared to a charge of GBP802 million a year ago.

"Whilst we continue to navigate a high degree of uncertainty in the wider economic environment, a net impairment release of GBP102 million in the quarter reflects releases in non-default portfolios, principally in Commercial Banking, as support schemes continue to mitigate realised levels of default," the bank said.

NatWest retained its outlook guidance.

Chief Executive Alison Rose said: "Defaults remain low as a result of the UK government support schemes and there are reasons for optimism with the vaccine programmes progressing at pace and restrictions being eased. However, there is continuing uncertainty for our economy and for many of our customers as a result of Covid-19. Our capital strength and well-diversified balance sheet means NatWest Group is well positioned to help people, families and businesses to rebuild and thrive."

Consumer goods firm Unilever reported annual underlying sales growth of 5.7% for the first quarter of 2021, driven by volume, up 4.7%, with price hikes contributing 1.0%. Turnover fell by 0.9% to EUR12.3 billion, however, largely due to a negative currency-related impact of 8.0%.

Unilever's Foods & Refreshment arm achieved underlying sales growth of 9.8% - with out-of-home ice cream returning to growth and in-home ice cream up double-digits - fuelled by volumes, while Home Care reported sales growth of 5.9% and Beauty & Personal Care growth of 2.3%.

"We are confident that we will deliver underlying sales growth in 2021 within our multi-year framework of 3% to 5%, with the first half around the top of this range. We expect to increase underlying operating margin slightly for the full year, though with a decline in the first half driven by Covid-19 impacts, higher cost inflation and increased marketing spend over the prior year," said Chief Executive Alan Jope.

Unilever will pay a quarterly dividend of EUR0.4268 per share and has approved a share buyback programme of up to EUR3 billion, to commence in May.

Medical devices maker Smith & Nephew reinstated its full-year guidance after a strong start to the year.

First quarter revenue of USD1.26 billion was up 12% on a year ago on a reported basis and 6.2% higher underlying. All three global franchises - Orthopaedics, Sports Medicine & ENT and Advanced Wound Management - returned to growth on a reported and underlying basis.

S&N reinstated guidance for 2020, targeting underlying revenue growth in a range of 10.0% to 13.0% and a trading profit margin around 18.0% to 19.0%. This assumes improvement in conditions through the year, with surgery volumes largely unconstrained by Covid-19 in the second half.

"Our first priority for 2021 is to return to growth and recapture our pre-Covid momentum, and we are encouraged by our early progress through Q1," said Chief Executive Roland Diggelmann, adding that there is "improving visibility" as vaccine programmes roll out and healthcare systems reopen.

Inchcape said its first-quarter results were ahead of internal expectations.

The automotive distribution, retail and services company reported revenue of GBP1.9 billion for the quarter, up 2% on an organic basis but 3% lower reported.

"Our first-quarter results were ahead of our expectations. The performance demonstrates the underlying resilience of the Group - with revenue growth underpinned by a widespread recovery in our Distribution business," said Chief Executive Duncan Tait.

Distribution revenue rose 10% on a reported basis in the period, while Retail sales were down 18%.

Tait said: "Looking ahead, while the pandemic situation presents continued uncertainty, absent any severe disruptions we continue to expect material growth in profits and an improved operating margin for FY21."

The economic events calendar on Thursday has German unemployment and inflation readings at 0855 BST and 1330 BST respectively. There are US economic growth and jobless claims figures at 1330 BST.

Gold was quoted at USD1,784.53 an ounce early Thursday, higher than USD1,772.08 on Wednesday. Brent oil was trading at USD67.44 a barrel, soft on USD67.65 late Wednesday.

By Lucy Heming; lucyheming@alliancenews.com

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