Royal Dutch Shell and BT

Thursday, January 31, 2019 - 10:01

“An unexpectedly dovish US Federal Reserve which seemed to dial back on the likely pace of rate increases overnight helped provide a boost to global markets. “Amid a raft of corporate updates, including a positive fourth quarter performance from index heavyweight Royal Dutch Shell, the FTSE 100 trades 0.6% higher to move within sight of the 7,000 level,” says Russ Mould, Investment Director at AJ Bell.

Royal Dutch Shell

“Oil major Royal Dutch Shell managed to break its losing streak in the fourth quarter despite the fall in oil prices.

“Every other quarterly set of figures for 2018 saw Shell come in short of expectations. But not this time. The company’s main measure of profit beat consensus and even came in ahead of the third quarter number – buoyed in particular by its refining, marketing and integrated gas operations.

“This is testament to the progress Shell has made in becoming a more efficient operation, particularly when you consider the average oil price in the fourth quarter was around $64 compared with $73 In the third quarter.

“The big improvement year-on-year in full year profit, to the highest level in four years, is less of a surprise.

“It reflects the fact that, although oil declined in the last weeks of 2018, it still was on average materially higher than it had been in 2017.

“The level of cash generated by the company also meant it was able to reduce its borrowings while still maintaining its generous buybacks and dividends.

“A longer-term concern for shareholders will be a significant drop-off in reserves replacement. In 2018, the company only added around half the number of barrels in new reserves as it pumped out of the ground – though this was affected by the mothballing of its Groningen natural gas field in the Netherlands due to earthquake fears.”


“The last set of quarterly numbers from telecoms giant BT under chief executive Gavin Patterson is out. And the release is a neat microcosm of his entire tenure, that is to say pretty mixed.

“Patterson, who gives way to Worldpay’s Philip Jansen on Friday, has had a little over five years in the job and has ultimately delivered a negative total return for shareholders.

“To his credit, Patterson has steered the company through some tough financial and regulatory challenges.

“Third quarter results came in ahead of expectations with growth in revenue and earnings from its consumer business.

“On a group-wide basis revenue and earnings fell year-on-year and there was no change in guidance for the full year – its Openreach networks arm hit by regulated price cuts.

“It could well be the case that his successor is the one to enjoy the benefits of Patterson’s efforts to create a leaner business. Patterson himself expects the full benefits from this push to be apparent from the March 2021 financial year onwards.

“The market will be watching Jansen closely to see the direction he wants to take BT in. Might he look to rebase the dividend with BT yielding more than 6.5% and how will he approach the expensive business of bidding for sports rights?”

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

The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.