Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

Like them or loathe them, the oil giants Shell and BP have typically been the most reliable dividend payers in the FTSE 100. Is that set to change though as the shift to greener fuels and the latest round of oil pricing takes its toll? And what now for the UK’s housebuilders? Will buyers be back now that mortgage rates show signs of easing?  

Here is a round-up of some of the stocks to keep an eye on in February as these companies issue their latest results or trading updates. 

This is not a recommendation to buy or sell these investments and is purely insight into some of the companies that will be announcing results this month. 

BP  

Controversy and argument have always swirled around the oil giants. The latest round though has taken an unexpected turn. This time, an activist investor has called on BP to ditch its commitment to cut oil and gas output, saying the strategy is destroying shareholder value.  

Bluebell Capital Partners, a London-based hedge fund which has a small stake in BP, argues that the strategy, launched by former chief executive Bernard Looney in 2020, is seeing the oil giant switch away from hydrocarbons too quickly. It may have been welcomed by environmentalists, but the activist investor says the move is doing nothing for investors.  

The argument from Bluebell Capital is that the shift in focus to cleaner energy is costing it heavily when it comes to profits and this has resulted in BP lagging behind its rivals, such as Shell, TotalEnergies, ExxonMobil and Chevron, when it comes to returning money to shareholders. And that’s important when Shell and BP have long been among the FTSE 100’s most reliable dividend payers. 

There is no doubt that BP has something of a dilemma on its hands. Pressure has been mounting on it to make a transition to renewable power, but these projects generally have a lower return on investment than oil and gas, posing a challenge for companies such as BP seeking to keep everyone happy. 

BP initially committed to a 40% reduction in output by 2030, but pared that back to 25% after war in Ukraine resulted in disruption in the energy markets. It has also reviewed its dividend policy, which has enabled management to reallocate cash to shareholders with increased dividends and share buybacks. BP is now a leaner business that generates strong free cash flow, even when crude oil is trading at a much lower price per barrel. And that’s a significant step because the oil majors tend to have higher borrowing costs than newer green energy providers.  

BP clearly knows it needs to take advantage of the ongoing energy transition to more environmentally friendly sources as well as diversify earnings from fossil fuels, in order to keep both shareholder and activists happy. All of which is something new chief executive Murray Auchincloss will be very aware of.  

Officially now at the helm, after months of being its caretaker in the wake of turmoil surrounding the departure of his predecessor, investors will no doubt want to see him take steps to narrow BP’s valuation gap with its rivals; a gap that noticeably widened under Mr Looney’s tenure as he pushed the group into greener energy.  

Whichever path he takes the company on, he’s likely to come up against criticism from one group or another. At last April’s annual meeting, the reappointment of BP chair Helge Lund was questioned by investors unhappy that BP had watered down its energy transition goals without seeking shareholder approval. There was also a resolution, with backing from campaign group Follow This, for a more ambitious decarbonisation plan. This latest round of activism from Bluebell just demonstrates yet again how tricky it is to get the balance right. 

It’s almost impossible to talk about BP without mentioning its key competitor, Shell. Its fourth quarter results came out on 1 February and Europe’s biggest oil and gas company did not disappoint; reporting adjusted earnings of $28.3bn.  

That’s a not insignificant 29% drop from the record $39.9bn it reported last year after energy prices spiked following Russia’s invasion of Ukraine, but still higher than any other year since 2011. It even topped the $26.8bn pencilled in by analysts.  

Shell’s integrated gas division provided the biggest contribution to group profits, but the oil division also performed well. 

And there was more good news for shareholders, with another $3.5bn share buyback announced too, along with a fourth quarter dividend pay-out up 4% to 34 cents a share.  

BP’s shareholders will be waiting to see what’s in store for them on 6 February. 

 

Barratt Developments 

There has finally been some good news from the UK property sector. UK house prices rose much more than expected in January, and at the fastest pace since October, according to mortgage provider Nationwide. An easing of mortgage rates is believed to be behind the shift in momentum. 

Bank of England data shows the average rate for new mortgages fell in December for the first time since November 2021 while mortgage approvals rose to a six-month high. 

All eyes were on the Bank of England’s latest monetary policy committee announcement and although rates remain at 5.25% for now, predictions from the Bank that inflation could fall to 2% as soon as April, suggests a rate cut is on the horizon. And that would be very welcome news for anyone with or wanting a mortgage.   

The hope too among the UK’s housebuilders will be that an easing of the cost-of-living crisis and a cut in mortgage rates would put a spring in buyers’ steps and prompt a turnaround in their fortunes.  

For now though, with rising mortgage rates having put off would-be buyers, the scrapping of the Help to Buy scheme closing one avenue for buyers after an affordable way into the property market, the traditional winter slump in the sales and an uncertain economic outlook, the housebuilders have had a lot to contend with of late. And that has been evident in their most recent results. 

The turmoil started in September, when bad news from Barratt Developments sent shockwaves through the entire sector. A near 10% fall in pre-tax profits to £705.1m for the year to the end of June from the UK’s largest housebuilder was accompanied by data showing that average weekly net private reservations had fallen from 188 to 169 as mortgage affordability was clearly putting potential buyers face off. 

The group said its order book fell from £3.6bn to £2.4bn as a result of the slower reservation rate. Full-year completions guidance of 13,250-14,250 was unchanged, but activity was expected to be slightly weighted to the second half in line with seasonal trends. 

Most notably, its chief executive warned that it looked likely to be two years, at least, before the market for new homes recovers.  Barratt said its only option was to cut land buying and pause share buybacks in order to preserve cash.  

The question now is whether the latest predictions from the Bank of England could mean that turnaround may be closer than the two years-plus Barratt forecast last year. 

Keep an eye out for more on this possibly when Barratt Developments posts its half-year results on 7 February.
 

Redrow 

The likes of Barratt Developments cutting back on land-buying means developers will inevitably have fewer plots, so fewer houses can be built - and sold - as a result. According to official statistics, England added 234,400 new homes last year, 212,570 of which were newbuilds. Set that against the government’s target for 300,000 and throw into the mix the prediction that the number of newbuilds is set to fall further this year, and you can see how a fall in profits is likely across the whole sector. 

Redrow has already warned that it expects profits to fall by half in the next year. Its pre-tax profits for the year to June 2024 are now forecast to fall to between £180m and £200m, compared to the £395m achieved in the previous year. It said summer sales had been more than 40% slower than the year before, with the cost of living clearly taking its toll. Group revenue is expected to come in between £1.65bn and £1.7bn.  

However, in an update in November it warned that both sales and profits were likely to come in at the lower end of these ranges. In the year to June 2023 Redrow turned in revenue and pre-tax profits of £2.13 billion and £395 million, respectively. 

Redrow advised that the value of net private reservations since the start of the current financial year were down 25% year-on-year, at £384 million. The average selling price of private reservations was 2.5% lower over the period, at £471,000. 

Tellingly, cancellation rates were 3% higher at 25% than in the same period last year; a result of a breakdown in sales as a result of difficulties with mortgages lower down many property chains. 

Redrow’s half-year results are due out on 8 February.

  • Also keep an eye out for a trading update from Bellway on 9 February.


NatWest 

For a UK bank, NatWest is something of a rare thing, 36% of its ownership is currently in the hands of the government. That could all change though if a sale to the general public goes ahead.  

NatWest has been part government-owned since it was rescued during the financial crisis in 2008. Back then it bought 54.7% of the company’s shares as part of a £45bn bailout. The Treasury has been gradually selling off its stake since then and in November the Chancellor Jeremy Hunt said the Government would “explore options” for a retail share offer to the general public. That could happen as soon as June, as part of a plan to dispose of the stake in full by 2025/26.  

If so it’s likely to happen after the bank's first quarter results in April but ahead of its half-year results due out in July. Before then though we have its 2023 full-year results to come on 16 February. The question is, will NatWest be a stock the “Sids” of the 1980s privatisations boom would even want to invest in? 

A disappointing third quarter trading update appeared to show that the profits boom brought about by higher interest rates was over. Its third quarter net interest margin of 2.94% came in 19 basis points lower than the previous period and well below the 3.11% that had been forecast.  

Up until this point NatWest’s net interest margin, which is the difference between the interest it receives on its loans and the rate it pays on deposits, had been widening nicely and been hugely profitable for the bank. 

Operating profits also fell to £1.33bn from £1.77bn in the second quarter of the year, on the back of greater competition and pressure on the bank’s mortgage business.  

The bank has also closed almost 140 branches over the past year and there are likely to be more closures to come in 2024. The bank acknowledges the need to ensure all customers are factored into the equation, but there can be no doubt that the shift to mobile and online banking is its priority. 

And let’s not forget that almighty row with former UKIP leader Nigel Farage, which resulted in the twin resignations of NatWest chief exec Alison Rose and Coutts chief exec Peter Flavel. 

A 5.5p dividend and a £500m share buy-back in July, after Rose’s resignation, would have gone some way to pleasing shareholders. But whether it can replicate the £3.6bn profit on the back of rising interest rates, up from £2.6bn for the six months to end-June 2022 and ahead of even its own guidance of £3.3bn, any time soon remains to be seen.  

NatWest full year results are due out on 16 February. 

Five-year share price performance table

(%) As at 31 Jan 

2019-2020 

2020-2021 

2021-2022 

2022-2023 

2023-2024 

BP 

-6.6 

-36.0 

48.3 

33.0 

-0.9 

Shell 

 

-15.6 

-32.9 

41.0 

30.4 

7.3 

Barratt Developments 

61.0 

-20.4 

-0.2 

-17.1 

26.7 

Redrow 

37.0 

-33.9 

22.4 

-11.0 

23.5 

NatWest 

2.2 

-32.4 

69.1 

42.2 

-22.3 

Past performance is not a reliable indicator of future returns

Source: FE, as at 31.1.24 Basis: Total returns in GBP. Excludes initial charge.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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