LONDON MARKET PRE-OPEN: Shell expects chunky refining margin gain

(Alliance News) - Stocks in London are called higher on Thursday, after the US Federal pledged to ...

Alliance News 7 July, 2022 | 6:49AM
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(Alliance News) - Stocks in London are called higher on Thursday, after the US Federal pledged to continue fighting inflation, while in the UK, Prime Minister Boris Johnson continues to cling onto power.

IG futures indicate the FTSE 100 index is to open 77.0, or 1.0%, points higher at 7,184.77. The blue chip index closed up 82.30 points, or 1.2%, at 7,107.77 on Wednesday.

In early UK corporate news, oil major Shell expects to book an impairment reversal of up to USD4.5 billion on an improving commodity price outlook, housebuilder Persimmon continues to expect house price growth to outpace build cost inflation and gambling firm Entain lowered guidance.

Shell said it expects to book impairment reversals in the range of USD3.5 billion to USD4.5 billion, due to changes in its commodity price outlook.

It expects a Brent price of USD80 per share in 2023, before USD70 in 2024 and 2025.

"In the second quarter 2022, Shell has revised its mid and long-term oil and gas commodity prices reflecting the current macroeconomic environment as well as updated energy market demand and supply fundamentals. This resulted in a review of Shell's Upstream and Integrated Gas previously impaired assets," the company explained.

The statement came in a pre-second quarter results update from the oil major.

Shell also said it expects its indicative refining margin to improve to USD28.04 a barrel in the second quarter, from USD10.23 in the first.

This will hand a boost between USD800 million and USD1.20 billion to its Products division, a provider of lubricants, in the second quarter.

Brent oil was quoted at USD100.84 a barrel early Thursday UK time, up from USD99.67 late Friday. The North Sea benchmark edged back above the USD100 mark after coming under pressure from recessionary fears.

Persimmon said its half-year revenue and legal completions were lower, though forward sales are on the up and it expects to report an improved gross margin for the six months to June 30. Its operating margin will take a hit, however.

Revenue was down 8.2% to GBP1.69 billion in the first half of 2022 from GBP1.84 billion a year earlier. Completions have fallen to 6,652 from 7,406.

Completions were below expectations due to "further delays in the planning system and material and labour shortages". However, the average selling price was 4.0% higher at GBP245,600.

Forward sales were 2.7% higher at GBP1.87 billion from GBP1.82 billion.

"Rising energy prices, supply constraints on certain materials and increased labour costs are driving upward pressure on total build costs. Currently, house price inflation is continuing to offset these increases. As a result, we expect to deliver a housing gross margin that is slightly ahead year on year, although, the lower number of completions will result in a slight fall in operating margin reflecting the reduced efficiency of the group's overhead recovery rates. Despite this, we anticipate the group's profit at the half year to be modestly above our expectations," the company said.

Persimmon's statement came as separate figures from Halifax showed the UK housing market remained strong.

In June, prices grew 13% annually, the strongest growth since late 2004. Monthly, prices rose 1.8% to GBP294,845. In May, prices had risen 11% yearly and 1.2% monthly.

Entain nudged annual guidance lower. For 2022, it now expects flat online net gaming revenue, excluding impacts from the upcoming UK Gambling Act Review. It had previously forecast mid to high single digit.

Wider group net gaming revenue rose 18% in the first half of 2022 and was up 8% in the second quarter alone.

Online NGR was down 7% in both the first half and second quarter.

"A weaker macro-economic environment is reducing customers' rate of spend, moderating overall Online growth versus our previous expectations," Entain cautioned.

Recent listing Baltic Classifieds Group said annual revenue topped initial public offering guidance, rising 21% to EUR51.0 million in the year to April 30.

Pretax profit rose 38% to EUR2.45 billion from EUR1.78 billion.

The operator of online classified ad portals declared a 1.4 cents final dividend. In addition, it plans to return cash to shareholders through a buyback.

"We expect the appropriate authorities to be in place following the AGM for us to begin buying back our shares. The board will consider the allocation of excess cash towards reducing gross debt and to the share buyback programme at that time," Baltic explained.

In the retail sector, Watches of Switzerland reported a record performance while consumer electricals seller Currys said its annual outturn was "encouraging".

Watches of Switzerland said revenue in the year ended May 1 jumped 37% to GBP1.24 billion from GBP905.1 million. Pretax profit surged 98% to GBP126.2 million from GBP63.7 million.

The luxury watch seller said it has started the new year with "strong momentum", as Covid-19 disruption is largely behind it. It expects revenue between GBP1.45 billion and GBP1.50 billion in the financial year ahead, a moderation from financial 2022's growth.

Currys posted a slight revenue fall in the year ended April 30.

Revenue declined 1.9% to GBP10.14 billion from GBP10.34 billion. Pretax profit, however, jumped to GBP126 million from GBP33 million.

"Our financial results are encouraging, particularly as they were achieved during a year of significant change, uncertainty, and disruption. Group sales were flat YoY on a currency neutral basis, as growth in our International business was offset by the decline in UK & Ireland," Currys said.

It declared a 2.15p final payout, taking its yearly dividend to 3.15p, up 5.0%.

The pound fetched USD1.1943 early Thursday in London, up from USD1.1917 late Wednesday. The euro stood at USD1.0209, up from USD1.0192. Against the yen, the dollar was trading at JPY135.90, up from JPY135.56.

Fed policymakers reaffirmed their commitment to combating elevated levels of inflation even at the risk of damaging economic growth, according to the central bank's meeting minutes.

At its most recent meeting in June, the Fed enacted a 75 basis points interest rate hike, taking the federal funds rate to a range of 1.5% to 1.75%. It was the first hike of that magnitude since November 1994.

Notably, FOMC members highlighted that "inflation pressures had yet to show signs of abating," which meant rising prices could be "more persistent than they had previously anticipated,"

As such, rate-setters at the Fed said the July meeting would likely see another substantially sharp move in interest rates.

The pound, meanwhile, hit a two-year low against the dollar on Wednesday as political turmoil engulfs the heart of the UK government.

In the latest development, UK Northern Secretary Brandon Lewis on Thursday announced his resignation, telling Prime Minister Boris Johnson that his scandal-hit government was "past the point of no return".

"I cannot sacrifice my personal integrity to defend things as they stand now," he said, adding that the ruling Conservative party and the country "deserve better".

Overnight, Johnson dramatically sacked Cabinet rival Michael Gove and rejected calls to quit as support for his leadership collapsed at Westminster.

The prime minister met ministers in No 10, where he was told he had lost the confidence of the Tory party and could not continue in office.

Gove was thought to have told the prime minister on Wednesday morning that it was time for him to quit.

That was followed by a delegation of Cabinet ministers going to No 10 to tell Johnson he should stand down after losing the trust of his MPs.

Johnson's relationship with Gove has long been troubled, with the prime minister's leadership campaign in 2016 derailed when his rival withdrew support and decided to run himself.

But it was not only Gove who sought to persuade Johnson that his time in No 10 should end.

Home Secretary Priti Patel, Business Secretary Kwasi Kwarteng, Transport Secretary Grant Shapps, Northern Ireland Secretary Brandon Lewis and Welsh Secretary Simon Hart were among the Cabinet ministers telling Johnson to stand down.

The PA news agency understands that Patel spoke to the prime minister to convey the "overwhelming view" of the parliamentary party.

In Tokyo on Thursday, the Nikkei 225 closed up 1.5%. In China, the Shanghai Composite was up 0.4%, though the Hang Seng in Hong Kong was 0.1% lower. The S&P/ASX 200 in Sydney ended 0.8% higher.

Gold stood at USD1,744.89 an ounce, up from USD1,738.77.

The economic events calendar on Thursday has the US ADP jobs report at 1315 BST and latest jobless claims numbers at 1330 BST.

By Eric Cunha;

Copyright 2022 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Currys PLC 65.10 GBX 0.85 -
Baltic Classifieds Group PLC 150.40 GBX -3.09 -
Persimmon PLC 1,847.00 GBX -0.48
Watches of Switzerland Group PLC 871.00 GBX 0.58 -
Entain PLC 1,413.00 GBX 4.09 -
Shell PLC 2,215.00 GBX 0.07

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