BP’s mixed results, and new property market data puts spotlight on estate agents and housebuilders

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“The delay to Brexit weighed on banking shares and in turn dragged the FTSE 100 down by 0.5% to 7,297. The pound also took a step back, dipping 0.1% against the US dollar to $1.2847. Not helping matters were mixed results from BP and new data showing the housing market is still stuck in the mud,” says Russ Mould, Investment Director at AJ Bell.

BP

“We often hear about the merits of focus in the corporate world but today’s third quarter numbers from oil major BP are an advert for the benefits of a being a big diversified operation.

“Lower oil prices and storm outages might have hit profit in the oil production part of the business, but the arm, which refines oil into end products like jet fuel and petrol, has had a strong quarter and helped the company beat expectations.

“However it would be hard to describe these results, with the company actually posting a statutory loss for the period, as the best parting gift from chief executive Bod Dudley as he prepares to retire next year. Investors might perhaps be most concerned by a significant increase in indebtedness.

“The quarterly loss partly reflects big tax charges associated with the company’s divestment programme – a process which has helped turn BP into a more efficient operator – and at least cash flow and underlying earnings were fairly robust.

“These are probably a better reflection of the state Dudley is leaving the business in as he prepares to hand over to Bernard Looney. That doesn’t mean Looney faces an easy task, particularly if oil prices remain under pressure.”

Nationwide house price index / Estate agents / Housebuilders

“It is fair to say that estate agents aren’t having a good time given the lacklustre state of the UK housing market. Nationwide’s latest house price index shows growth remaining below 1% for the eleventh month in a row in October. Average prices are only growing at a fraction of the rate seen three years ago.

“A period of cheap mortgages hasn’t been enough to stimulate the market as the uncertainty of Brexit weighs on consumer confidence and property transaction activity.

“Estate agents are heavily exposed to the property market because most charge commission based on the sale price of a property. They hope for rising property prices and a constant stream of transactions.

“The Royal Institution of Chartered Surveyors earlier this month said the number of homes being put up for sale had slumped to a three-year low. Delays to Brexit will only make matters worse and prolong the agony for the sector.

“From an investment perspective one may initially think the backdrop is bad for sentiment towards relevant stocks but arguably so much bad news is already priced into the sector. Foxtons’ shares only fell 0.7% on the latest Nationwide house price index and interestingly they’ve surged in recent weeks on hope of a Brexit resolution, appreciating by 39% in value between 10 and 25 October.

“Housebuilders, estate agents and banks are seen as the key sectors whose share prices could rally once Brexit uncertainty is removed, and Foxtons’ price movement gives us a taste of how the market could potentially behave once we know how Brexit will play out.

“Nationwide’s latest data is gloomy but it could be a lot worse. At least the property market is ticking over rather than seeing a large downturn so there is no need to feel too much pity for estate agents.”

Property-related share price movements since 1 October 2019

Estate agents / Real estate services
Foxtons +34%
Countrywide +21%
LSL Property Services +12%
Savills +9%
M Winkworth +9%
Belvoir +8%

Housebuilders
Glenveagh Properties +12%
Crest Nicholson +10%
Bovis Homes +8%
Persimmon +8%
Cairn Homes +7%
Berkeley +6%

Benchmark indices
FTSE 100 -1.4%
FTSE 250 +1.2%

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