LONDON MARKET PRE-OPEN: BP swings to quarterly loss after Rosneft exit

(Alliance News) - Stock prices in London are seen opening lower on Tuesday, after the long bank ...

Alliance News 3 May, 2022 | 6:53AM
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(Alliance News) - Stock prices in London are seen opening lower on Tuesday, after the long bank holiday weekend in the UK, as concerns rise over aggressive monetary policy tightening by the US Federal Reserve.

In early company news, oil major BP swung to a first-quarter loss following its exit from Russian oil firm Rosneft. Cybersecurity provider Avast posted a fall in first-quarter earnings. Drugmaker Hutchmed (China) had a treatment rejected by US Food & Drug Administration.

IG futures indicate the FTSE 100 index will open 57.45 points lower at 7,487.10. The index closed up 35.36 points, or 0.5%, at 7,544.55 on Friday.

BP swung to a first-quarter loss due to the oil major's decision to exit its shareholding in Rosneft in response to Moscow's invasion of Ukraine.

For the three months to March 31, BP swung to an attributable loss of USD20.38 billion from a USD4.67 billion profit in the first quarter last year. BP said the reported result included pretax adjusted items of USD30.8 billion.

By its preferred metric, BP swung to a replacement cost loss of USD23.04 billion from a replacement cost profit of USD3.33 billion the year before.

The London-based firm attributed the loss to its decision to exit its near-20% shareholding in state-owned Russian oil firm Rosneft. BP said that, in the first quarter, the total post-tax charge for this was USD25.5 billion.

Still, BP raised its first-quarter dividend by 4.0% to 5.46 cents from 5.25 cents the year before.

Looking ahead, BP said it expects the short-term outlook for gas prices to remain heavily dependent on Russian pipeline flows to Europe.

BP expects second-quarter underlying upstream production to be lower than in the first quarter. Further, second-quarter production will reflect an additional hit from the absence of production from "Russia incorporated joint ventures", it said.

"In a quarter dominated by the tragic events in Ukraine and volatility in energy markets, BP's focus has been on supplying the reliable energy our customers need. Our decision in February to exit our shareholding in Rosneft resulted in the material non-cash charges and headline loss we reported today. But it has not changed our strategy, our financial frame, or our expectations for shareholder distributions." said Chief Executive Officer Bernard Looney.

"Importantly BP continues to perform and step-by-step we are making progress executing our IEC strategy - producing resilient hydrocarbons to provide energy security while investing with discipline in the energy transition," Looney added.

Cyber security firm Avast reported a fall in first-quarter earnings due to sale of the Family Safety business in 2021.

For the three months to March 31, revenue was down to USD234.6 million from USD237.1 million a year ago. Adjusted earnings before interest, tax, depreciation and amortisation was USD127.9 million, down from USD133.7 million.

In March, Avast had said that it was suspending its operations in Russia and Belarus.

Looking ahead, Avast expects low single-digit organic revenue growth and mid-single-digit billings growth for 2022. The cybersecurity firm also said adjusted Ebitda margin for the year is expected to be slightly below 50%. This reflects 10 months with zero sales in Russia, the continued investment in various customer initiatives and increased customer acquisition costs, it explained.

Avast said its profit forecast excludes any transaction costs related to its merger with NortonLifeLock.

Hutchmed (China) said the US Food & Drug Administration has rejected its surufatinib for treatment of pancreatic neuroendocrine tumours.

In a complete response letter, the FDA said the current data package, based on two positive phase three trials in China and one bridging study in the US, does not support an approval in the US "at this time".

The FDA said a multi-regional clinical trial of surufatinib required for US approval.

Surufatinib was approved in China for the treatment of pNETs and extra-pancreatic neuroendocrine tumours in June 2021 and December 2020, respectively.

Chief Executive Officer & Chief Scientific Officer Weiguo Su commented: "Although this decision from the FDA is disappointing, we remain confident about the clinical value of surufatinib for NET patients and committed to making surufatinib available to patients globally. We look forward to working with the agency to evaluate its feedback. Throughout the duration of the US review process, we have been transparent and collaborative with the FDA.

"There are very few treatments approved and used in these rare diseases, and patients and physicians would benefit from more options to address the unmet medical need. We look forward to continued engagement with the FDA on developing a plan to bring surufatinib to patients in the U.S."

The call for a lower open in London came as the Federal Reserve's two-day policy meeting gets underway Tuesday.

Surging consumer prices, moves to tighten monetary policy, China's Covid lockdowns, the Ukraine war and a stronger dollar have come together in recent weeks to cause a massive headache for investors, sending them running to the hills.

All eyes are on the conclusion Wednesday of the Fed's two-day policy meeting, where it is expected to lift borrowing costs by half a percentage point. It would be the first time since 2000 that the US central bank has raised rates by 50 basis points at one meeting.

However, while officials see a hawkish move as necessary to control 40-year high inflation while still allowing for economic growth, there is a growing unease that they could knock the fragile pandemic recovery off course and even cause a recession.

"With central banks under pressure to tackle rising inflationary forces investors don't have the luxury of falling back on a benign interest rate environment, with the Federal Reserve set to raise rates tomorrow by 50bps and the Bank of England set to follow suit with at least another 25bps on Thursday," said CMC Markets analyst Michael Hewson.

Earlier Tuesday, the Reserve Bank of Australia raised interest rates in an attempt to combat inflation that has "picked up more quickly" than expected. The Sydney-based central bank raised the main lending rate by 25 basis points to 0.35%, the first increase since November 2010.

"The board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic," Governor Philip Lowe said.

In Asia on Tuesday, the Hang Seng index in Hong Kong was up 0.2%. The S&P/ASX 200 in Sydney closed down down 0.4%. Markets were closed in Tokyo for Constitution Memorial Day and in Shanghai for the Labour Day holiday.

The pound was quoted at USD1.2527 early Tuesday, down from USD1.2568 at the London equities close Friday.

The euro was priced at USD1.0515, down from USD1.0547. Against the Japanese yen, the dollar was trading at JPY130.12, up from JPY129.68.

Brent oil was quoted at USD106.81 a barrel on Tuesday morning, down sharply from USD110.30 late Friday. Gold stood at USD1,860.33 an ounce, down from USD1,906.75.

The economic events calendar on Tuesday has eurozone unemployment data at 1000 BST.

By Arvind Bhunjun;

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
BP PLC 388.30 GBX -2.36
Avast PLC 517.00 GBX -1.41 -
HUTCHMED (China) Ltd 200.00 GBX -5.44 -

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