Shell beats expectations, Novo Nordisk rides high on weight loss boom and UMG and TikTok resolve spat

“The chair of the Federal Reserve Jerome Powell gave with one hand and took away with the other from a market perspective,” says AJ Bell investment director Russ Mould.

“As the Fed kept rates on hold as expected, Powell largely dismissed any idea they might rise from the current levels despite inflation proving more stubborn than hoped. However, he did warn rates would stay higher for longer. 

“He tried to reassure on the risks of stagflation – a slowing economy and rising prices at the same time – arguing he didn’t see the ‘stag’ or the ‘flation’. However, he, like other central bankers, said inflation would be transitory in 2021 so his track record on predictions isn’t exactly unblemished.

“In a reflection of this mixed commentary, US stocks endured a seesaw session last night. The FTSE 100 pressed on, not far off the latest record highs set on Tuesday, helped by better-than-expected results from index heavyweight Shell.

“At the other end of the market cap spectrum, Revolution Bars confirmed it was in takeover talks with fellow nightspot operator Nightcap. Whether combining the two would lead to double trouble given the fragile state of the late-night drinking industry or actually fix their problems is open to question.”

Shell

“The relatively muted market reaction to Shell’s better-than-expected earnings and unveiling of a $3.5 billion share buyback may fuel the argument it would be better served by listing in the US. 

“However, this would be something of a red herring with enthusiasm for Shell likely tempered thanks to pressure on oil prices from strong US inventories.

“It is notable the company, a leader in the natural gas market, achieved its stronger-than-anticipated quarterly showing despite facing an obvious impact from lower gas prices.

“Profit was still down appreciably year-on-year, reflecting the broader industry trend. Chief executive Wael Sawan is desperate to close the valuation gap on the company’s American rivals. His focus on this aim has resulted in a dialling back of environmental commitments and the none too subtle hints about moving the primary listing across the Atlantic.

“While he can do nothing about the volatility in commodity prices, Sawan has managed to deliver lower costs and lower debt and improved the group’s profitability, increasing volumes and demonstrating a decent level of capital discipline.

“Sawan and Shell continue to face a tricky balancing act between growing the business, delivering generous shareholder returns and dealing with pressure from institutions, politicians, regulators and the wider populace over its environmental impact.

“The actions of a group of investors representing 5% of Shell’s share capital – who are pushing for the company to stick to tighter climate targets and have put forward a resolution to this effect at the AGM later this month – are a reminder of these pressures.”

Novo Nordisk

“For a company at the centre of the weight loss drug phenomenon, it’s ironic investors are judging Novo Nordisk by how much bacon it brings home. The market wants to see it fatten up profits and enjoy financial gains from others’ quest to drop the pounds.

“First-quarter profit beat expectations thanks to booming demand for its weight loss treatment Wegovy. Celebrities have been showing off their slender tones, bigging up the benefits of weight loss drugs and the general public wants to emulate their achievements. The price of slimming down is not cheap with Wegovy but there are clearly enough wealthy individuals who can afford the product, judging by Novo Nordisk’s strong results.

“Competition is growing in the market but demand is so high that Novo Nordisk is still racing to keep up with supplies, not fretting about what a rival like Eli Lilly is doing. However, the more products on the market and broader availability of each treatment, the greater the chance that prices will come down. This is already happening in the US. It means Novo Nordisk is facing the likelihood that weight loss treatments become lower margin in time, hence why it needs to ramp up volumes as fast as possible as the dial shifts from earnings quality to earnings quantity.”

Total / Shifting stock market listing to the US

“The UK is not the only country to have a problem retaining companies on its stock market. France is sitting nervous at the prospect that oil giant TotalEnergies might defect to the US in search of a higher valuation, echoing similar comments by Shell.

“French Finance Minister Bruno Le Maire says it is ‘important’ to keep Total in France. It feels as if the French government is more likely than the UK to put its foot down and find a way to impose restrictions to keep its big names on home soil. However, Total points out that nearly half of its shareholders are based in the US, so there is merit in having a stock listing in that country.

“It feels somewhat of a relief that the UK is the not the only one trying to protect its stock market crown jewels. However, it does imply we could see contagion and more names across the whole of Europe chasing the golden carrot of higher valuations in New York.”

UMG / TikTok

“One of the biggest bust-ups in the music industry has been resolved. Universal Music Group has secured a new deal with TikTok which will see its artists and songs reinstated on the social media platform following a bust-up about royalty payments and the use of AI.

“TikTok has become one of the most important marketing channels for musicians given the widespread popularity of the platform. Millions of people are discovering songs from clips used on social media posts and this is introducing new and old artists to the next generation of fans.

“For some artists, it has even led to broader financial gains such as being able to play much bigger concerts than historically. More people in a room means greater opportunity to sell merchandise, and so on.

“While there are plenty of headlines around the resurgence of vinyl, physical music sales aren’t enough to support to lives of most artists. A decade ago, few would have thought a social media platform would become a vital cog in the wheel to support musicians, but now it is very much a reality.”

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