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Tuesday preview: BP, Ocado results in focus

By Oliver Haill

Date: Monday 05 Feb 2018

LONDON (ShareCast) - (ShareCast News) - BP's results will be of interest to the many investors who bought back into the oil major's rally over the past couple of years, while Ocado will face investors on the back of a brace of major international deals.
Other UK news will include monthly, retail sales data from the British Retail Consortium, supermarket data from Kantar Worldpanel and Nielsen, while further afield it's quite quiet with the Reserve Bank of Australia rate decision not expected to see a change.

This could allow more attention on the finer details of BP's full year numbers, which will certainly be boosted by a oil price, with Brent crude averaging $61 in the final quarter of 2017 versus $52 in the third quarter of last year and less than $50 for the fourth quarter of 2016.

BP's rally has not solely been driven by a more favourable oil price environment, though it has been ramping up production in line with the oil price recovery, with production seen by Deutsche Bank topping 3.8m barrels of oil equivalent per day in Q4 compared to 3.3m boepd a year before.

"Although costs relating to the Deepwater Horizon oil spill are set to be higher than originally expected this year, at $3bn rather than $2bn, charges for the disaster are finally starting to decline. That should free up significant cash flow for reinvestment and debt reduction," said analysts at Hargreaves Lansdown.

At the same time as production has been rising, costs have been falling significantly, giving management confidence to launch a share buyback scheme in October to offset the effect of its scrip dividend programme.

Barclays expects BP to report underlying cash flow up more than 26% quarter-on-quarter reflecting the benefit of higher prices alongside the sustained ramp-up of new higher cash margin projects.

"Partly offsetting this is a weaker contribution from the downstream alongside a seasonally higher cost base, while the payment of a $1bn minerals tax in Germany is likely to dampen any reduction in net debt from disposals," analysts said.

"As ever, our main point of uncertainty comes from the trading contribution and exploration expense."

UBS forecast essentially flat production sequentially, up 5% year-on-year including Rosneft, with annual growth driven by the Adco concession plus the strong year for start-ups in 2017 but guidance for higher production into the final quarter tempered by the impact of the Forties pipeline closure.

"We expect no change to the dividend but the anti-dilution share buyback to restart immediately after the publication of results."

Ocado boss Tim Steiner may be having slightly mixed feelings ahead of announcing results. On one side, he will be relishing meeting analysts after the online grocery specialist bagged not only one of the major international deals he has promised for many year, but two of them. French retailer Casino was signed in November and a partnership with Canada's number-two Sobeys was revealed in January.

On the other hand, he may not get an easy ride from some newspapers, as the Guardian said Steiner will be stepping back "into the spotlight after ducking questions about Presidents Club", the men-only fundraising ball that saw a furore in the City over allegations of inappropriate behaviour and where Steiner's name was on the guest list.

Focusing on financials, as he may try to do, the company last updated the market on its performance in mid-December, with Q4 retail sales growth of 11.6%, well ahead of the market, albeit a step down from the 13.1% in Q3, with average order size stable but order volume growth slowed to 11.1% from 16.0% due to the impact of driver shortages in certain locations and, to a smaller extent, capacity constraints as its two 'customer fulfilment centres', CFC1 and CFC2, operate close to their limits.

Broker Numis edged back its full year revenue forecasts accordingly, and trimmed its EBITDA estimate by circa 1m.

Babcock International will issue a trading update on the back of several contract wins announced lately, including with the Australian Navy and with the Italian Ministry of Interior for a fully outsourced aerial firefighting service. Typically Babcock's updates focus in detail on the operational highlights of the business during the period.

"Key to improving sentiment in the stock will be demonstrating progress in building the order book and bidding pipeline, although we do not expect this to be a quick process given the slow pace of contract awards by the UK Government over the last 2 years," said Numis.

The broker said there may also be an update on net debt and cashflow, given concerns around cash generation, "although we do not view the balance sheet as stretched".

Investment and savings group Hargreaves Lansdown will report its own interim results, having already reported that customer numbers have breached 1m for the first time, which equates to roughly 10% customer growth over the year to December 2017.

Numis forecast a 25% increase in assets under management to 87.6bn with pre-tax profit increasing 35% to 152m.

Tuesday February 06

Balance of Trade (US) (00:00)
Factory Orders (GER) (07:00)

Retail Sales (00:01)

Amino Technologies, BP, Ocado Group, RM, St. Modwen Properties

Frontier Developments, Hargreaves Lansdown, Mattioli Woods

London Capital Group Holdings

JPMorgan Indian Investment Trust, Numis Corporation

Mitchells & Butlers, Schroder Asia Pacific Fund

Johnson Matthey, Workspace Group

JPMorgan Asian Investment Trust

Schlumberger Ltd.