OPEC Meeting, Oil Price Plunge Hits FTSE Energy Shares

The eagerly awaited OPEC meeting yesterday did nothing to combat investors fears as the oil cartels decided to keep oil production at its current levels. As a reaction the price of crude fell sharply to below $70 a barrel and is currently trading at $68.5 dollars a barrel though prices seem to have now stabilised somewhat.

However, this has had a knock on effect on all energy shares this morning with  FTSE giants BG Group (BG.L) and BP (BP.L) both falling heavily and taking the FTSE index down with them.

BG Group (BG.L) is down 7.7% at lunchtime and currently trading at 915.20p.

BP (BP.L) is down 2.55% at lunchtime and currently trading at 415.40p.

The FTSE index is moving back towards 6700 after dropping as low as 6665p this morning.

On the flip side, shares in Airlines made small rises this morning on the prospect of cheaper fuel, however these gains where soon erased.

Berenburg Downgrade Hits Thomas Cook Group

Berenburg today lowered its rating on Thomas Cook Group (TCG.L) from BUY to HOLD citing problems with its business model and the ongoing transformation of the company.

Berenburg in a note to investors says “We have never been fans of the TCG business model and have always seen this as a structurally challenged industry,”

The broker described how it had given Thomas Cook Group (TCG.L) a chance and stuck with its positive rating in the hope that with the prospect of positive earnings momentum could be building. However after Thomas Cooks results release on wednesday “made for miserable reading” the broker has now changed its stance on the shares and  has slashed its target price to 130p from 165p previously.

Further commenting Berenburg said “Thomas Cook Group (TCG.L) remains in the middle of a transformational restructuring where results thus far are disappointing. To combat the competitive intensity TCG is undergoing, a major reorganisation has been initiated which involves completely reshaping how the company does business. The costs of the restructuring are significant while the steps being taken are not so far seeing any easing in any of the challenges faced”.

Thomas Cook Group (TCG.L) shares are currently trading around 12% down on tuesdays pre results share price at 120p


BT jumps on news it is in talks to buy O2 from Telefonica

News emerged this morning from BT (BT-A.L) that is in talks with spanish giant Telefonica to buy O2. O2 the uks second biggest mobile network was originally offloaded by BT in 2001. With telefonica later purchasing O2 in 2005 for around £18Bln.

BT (BT-A.L) intends to re-enter the mobile network market next year in a possible wholesale agreement with German owned network EE, however has expressed an interest in buying either O2 or EE’s uk businesses.

In a statement this morning BT responded to recent press speculation with the following:

BT Group plc (BT) notes the recent press speculation relating to a potential transaction involving Telefónica UK (O2) in the UK.

We continue to develop our own plans for providing enhanced mobile services to business and consumer customers, in line with our previous announcements. We remain confident of delivering on these plans and have also been exploring ways of accelerating them, including assessing the merits of an acquisition of a mobile network operator in the UK.

We have received expressions of interest from shareholders in two UK mobile network operators, of which one is O2, about a possible transaction in which BT would acquire their UK mobile business. All discussions are at a highly preliminary stage and there can be no certainty that any transaction will occur.

Shares in BT jumped this morning on the news, currently trading at 390.60p (up 10.60p / 2.79%)

British American Tobacco Announce Management Change

British american Tobacco (BATS.L) today announced a series of management changes that will see current managing director of Nicoventures Des Naughton step down to focus on other ventures, this marks the end of nearly 20 years of working for the company. He is due to leave on 28th February 2015.

Chief Executive Officer, Nicandro Durante, commented, “We will miss Des’ passion for the business, strategic thinking and warmth of personality. Des has built a strong foundation for the Group for us to compete and win in Next Generation products. He, and the legacy he leaves, will be long remembered by his colleagues and friends in the company. On behalf of BAT, I thank Des for all he has done for the Group.”

At the same time, Des Naughton will be succeeded by Kingsley Wheaton, currently Group Corporate & Regulatory Affairs Director and will take on the role of Managing Director – Next Generation Products with effect from 1st January 2015.

Jerome Abelman, currently Assistant General Counsel – Corporate & Commercial will take on Kingsley Wheaton’s old role with effect from 1st January 2015.

Neil Withington, currently Group Legal Director & General Counsel has also signalled his intention to retire from the board of directors next year and will leave the group on 30th April 2015. Following Neil’s departure from the business, the Group’s Legal and Corporate & Regulatory Affairs functions will be integrated under Jerry Abelman’s leadership.

Paying tribute to Neil, Nicandro commented, “Neil’s farewell to the business comes after a distinguished 21 years with Group. Leading the Legal function he has been an outstanding General Counsel and a trusted advisor to the Board. Neil also leaves a very significant legacy and, on behalf of the entire organisation, I would like to thank Neil for all that he has achieved over his career with BAT.”

Further remarking on these moves, Nicandro added, “I am pleased to welcome Jerry to the Management Board. He will enhance the team with his substantial experience of the business and regulatory matters in particular. Furthermore, as Managing Director – Next Generation Products, Kingsley will bring the combination of his energetic leadership, marketing background and corporate affairs experience to this critical role.”

Rolls Royce Wins Delta Airlines Order according to reports

Aircraft maker Airbus in conjunction with engine manufacturer Rolls Royce (RR.L) has according to reports this morning won a series of big order from Delta Airlines.

Reports on trade websites say that Airbus will sell Delta 25 A350-900s and 25 A330-900s and Rolls-Royce will be the sole-source engine supplier. The order of 50 wide body aircraft was apparently hotly contested with US aviation giant Boeing.

Broker Liberum says the deal could be worth an estimated $3Bln to Rolls Royce (RR.L)

Royal Mail Group H1 Revenue Up, Parcel Business Struggles

Royal Mail Group (RMG.L) the former state owned postal operator today announced H1 figures which reported an increase in H1 revenue however pre-tax profit was slightly down on the same period last year. The headline figure showed revenue up 2% for the 6 months to 28 September to £4.5bln. Pre tax profit fell to £218m from £233M last year.

The company was bolstered by better than expected performance in its letters business however stated that the parcels business remains challenging, despite higher parcel volume for the period revenue was down 1%. However the European side of the business GLS posted an improved revenue up 7%

Moya Greene, Chief Executive Officer, Royal Mail Group (RMG.L), said:
“I am pleased with our overall performance. We have delivered two per cent revenue growth together with margin expansion, in line with our expectations. Our tight cost control meant that UK costs were flat on an underlying basis and we are expecting a similar performance for the full year. Looking further ahead, we are targeting a flat or better underlying UKPIL cost performance in 2015-16.

“The UK parcels market remains challenging. As the pre-eminent UK parcels delivery company, we are targeting a number of new, growing areas, and delivered two per cent volume growth in
a competitive market. We had a better than expected performance in UK letters. GLS, our European parcels business, demonstrated a strong performance with better than expected volumes in domestic and export parcels.

“Our performance remains in line with our expectations for the full year. But, as always, this depends on us delivering another great Christmas, for which we are fully prepared.”

Serco issues profit warning, plans writes issue

Serco (SRP.L), the outsourcing group is under pressure this morning after releasing a statement to investors detailing a £1.5bln write down of its business and issuing a profit warning. The company says it is planning a writes issue to strengthen its capital.

The company recently carried out a review of its contracts and balance sheet which has uncovered what it deems as “very material impairments”. The company had already released details earlier this year regarding several contracts which are loss making for the company. In particular highlighting a contract with Australian Defence Materiel Organisation for the maintenance of the Royal Australian Navy’s Armidale Class Patrol Boats (ACPB) along with several other smaller UK government contracts.

Serco (SRP.L) has adjusted profit forecast downwards from £155M to £130-140M though this is before the impact of the previously detailed impairments, the company also expects going forward that profit could fall to around £100M in 2015.

Rupert Soames, Group Chief Executive Officer, said: “The rapid progress we have made in recent weeks on the Strategy Review and the Contract & Balance Sheet Reviews has brought us to the point that we are able to provide an initial estimate of the impairments, write-downs and Onerous Contract Provisions that are likely to be required at year end.  Whilst it is a bitter pill, it is better for all concerned that we swallow it now and establish a really solid foundation on which to build Serco’s future.

“As might be expected, the Contract & Balance Sheet Reviews have encouraged much turning over of stones, and reflects our changing strategy and the latest view of the challenges we face on a few large contracts.  These challenges, together with a less pronounced improvement in trading in our second half than we expected, have led us to a more cautious view of 2014 and 2015.

“Looking ahead, we have not yet completed our Strategy Review, and we will present it, as planned, at the time of our Full Year Results in March 2015.  However, the direction is clear: Serco will concentrate on its core as a leading supplier of public services – an international B2G business focused on Justice & Immigration, Defence, Transport, Citizen Services and Healthcare.  These are businesses which we are really good at, where we deliver outstanding service, and where our skills, experience and international reach can differentiate us.  There are a tough couple of years ahead as we make this transition, but it will be worth it.”

Serco (SRP.L) was a heavy faller this morning losing nearly a third of its share price, and is trading at 218.20p by 10am (-31.1%)

Bovis Homes Expects increase in FY profit

Homebuilder Bovis homes (BVS.L) this morning released an interim statement saying it expects a “significant increase in shareholder returns” this year.

The company noted that this period has seen a more normal pattern of seasonal activity and that it has a strong order book going forward which supports its bullish outlook. Bovis homes also expects to continue in its attempts to invest in more land and that this is “progressing well”.

Highlights of the interim statement were:


·     On course to deliver a strong result for 2014 with an increase in volumes expected of circa 30% over 2013

·     Average sales price for 2014 legal completions expected to be approximately 10% greater than in 2013

·     Operating margin for 2014 expected to be circa 17% (2013: 14.9%), delivering a return on capital employed of circa 16% (2013: 10.4%)

·     Circa 6,000 consented plots on 33 sites added to the consented land bank to date with average returns above full hurdle rate

·     Substantial forward order book for 2015 supporting strong growth prospects

David Ritchie, the Chief Executive of Bovis Homes Group PLC said:

“We are anticipating a strong increase in profit for 2014 and at the same time expecting to deliver a stronger forward order book for the start of 2015.  The Group’s updated strategic plan as laid out at the time of our Interim Results to deliver optimal scale and enhanced returns is supported by our ongoing land buying and strategic land conversion.  We are confident of our future prospects and ability to deliver improved shareholder returns through higher return on capital employed and increasing dividends.”

Although this statement did little to please investors as Bovis homes (BVS.L) was trading down 28.00 at 816p (-3.32%) by mid morning.

Balfour Beatty Loses Finance Director

Builder Balfour Beatty (BBY.L) today announced that finance director Duncan Magrath is quitting the company, this news comes just weeks after Balfour Beatty announced its fifth profit warning in the last two years. Magrath, who has been with the company for 6 years will step down in 2015 once a permenant replacement has been found.

The company has experienced tough times recently, having been struggling to meet expectations and also having fought off an attempted takeover by fellow housebuilder Carillion.

Acting Chief Executive Steve Marshall said: ”Duncan has been our CFO for six years. He has shown huge personal commitment to Balfour Beatty, and particularly in the recent more challenging times, his contribution and his resolve under pressure has been unwavering.

Following the completion of the Parsons Brinckerhoff disposal and the announcement of our new group CEO, Duncan will be seeking new career challenges in 2015.”

Marshall himself will also step down soon as new Chief Executive has been announced as Leo Quinn, formerly of defence group Qinetiq.

HSBC Underlying Q3 Profit Falls 12%

HSBC (HSBA.L) today reported Q3 results showing a 2% increase in pretax profit for the period, however underlying Q3 profit fell 12% to $4.4Bln down $595Million from the same period last year.

The company blames “net movements in significant items” for the fall. HSBC has overall this year reported a fall of 9% in the first nine months of the year. Total pretax profit so far has been $16.9Bln compared to $18.6Bln for the last trading year.

The Commercial Banking side continued to grow, notably in HSBCs home markets of Hong Kong and the UK. Strong performance in Global Banking and Markets  was driven by Markets as Foreign Exchange and Equities both benefited from higher client activity.

Earnings per ordinary share and dividends per ordinary share (in respect of the period) for 9M14 were US$0.67 and US$0.30, respectively, compared with US$0.71 and US$0.30 for 9M13. The third interim dividend was US$0.10 per ordinary share.

Group Chief Executive, Stuart Gulliver, commenting said:
“The third quarter was a period of continued progress. Excluding significant items, we increased underlying profit before tax in all of our global businesses and maintained a strong balance sheet and a robust capital position.

Revenue continued to grow in Commercial Banking, dominated by growth in our home markets of Hong Kong and the United Kingdom. Global Banking and Markets contributed a strong revenue performance with its differentiated business model. Global Private Banking has attracted net new money of US$10 billion in areas targeted for growth since the start of the year. The remodelling of Retail Banking and Wealth Management and Global Private Banking remains ongoing.

Loan impairment charges are lower reflecting the current economic environment and the beneficial changes to our portfolio since 2011.

We continued to build essential infrastructure to deliver against our risk and compliance commitments and fulfil our regulatory obligations in the third quarter. Cost inflation in a number of our markets and a number of significant items also contributed additional costs. As a consequence, operating expenses are now higher than before. We are committed to achieving additional sustainable savings by further streamlining our processes and procedures.

Despite the rising regulatory expectations, I am confident that our business model remains sustainable and that we can deliver further value for our shareholders while meeting our obligations and protecting the future of HSBC.”

HSBC (HSBA.L) is trading slightly lower is early trading at 637.70p (-0.34%)