BP is one of the major companies due to report next week. ·Anadolu via Getty Images
Earnings season continues, and investors have some high expectations for some of the major companies reporting next week such as BP and Uber. In the UK, investors eagerly await the Bank of England’s latest decision on interest rates.
Thus far, 78% of S&P 500 (^GSPC) companies have reported their earnings, with 77% delivering an earnings beat.
In the Middle East, the world’s most profitable company Saudi Aramco will show if oil is still king.
Analysts expect BP's profits to slow due to a lower oil price, weaker refining margins and concerns over its energy transition strategy.
The refining margin is seen shrinking almost 30% to $20.10 per barrel, consensus shows. The first-quarter $1.75bn buyback tranche expected to be repeated in the second quarter, according to Bloomberg.
Revenues for the first quarter are forecast to be around $49,315bn, a significant decrease from around $56,951bn in Q1 2023 with pre-tax profits dropping from $8,535bn in Q1 2023 to $6,371bn in Q1 2024. Earnings per share are estimated to come in at $0.18, down from $0.27 per share last year, according to IG.
Investors will look at four headline figures when they assess the first-quarter results, said investment platform AJ Bell.
“The first is underlying replacement cost profit. This is not a statutory figure, but it is one that irons out any exceptional items and also the movement in value of the company’s stocks of oil and gas. The consensus analysts’ forecast is $2.9bn, not far below the result in the fourth quarter of 2023 but well down from the $5bn earned in the first three months of last year,” Russ Mould, investment director, Danni Hewson, head of financial analysis, and Dan Coatsworth, investment analyst, all of AJ Bell, wrote.
“The second is net debt. BP has done an excellent job of cutting its borrowings since the terrible fright it received during the pandemic when oil and gas prices collapsed. Cost cuts, capex cuts and asset disposals have helped to cut the net debt pile to $18bn from a peak of $51bn in 2020.
“The third is capital investment, and also the mix between hydrocarbons and renewables. After spending $15.6bn in 2023, BP has steered the market to expect $16bn in 2024.
“Finally, attention will switch to cash returns. In 2023, BP paid out $4.8bn in dividends and $7.9bn in share buybacks. The dividend ended 2023 at 7.27 cents and analysts expect 7.6 cents a quarter on average this year, while the company has already announced $3.5bn of buybacks for the first half of 2024. Add that to the forecast dividend and BP is already expected to return $8.5bn to shareholders this year, or some 8% of its current stock market valuation.
OPEC+ output cuts are expected to hit Aramco’s profit but investors will be keen to see hear updates on the extent of payouts after the oil major pledged £43bn in performance-linked dividends in 2024.
Benchmark oil prices remain favourable, supporting the company’s “strong financial position,” according to Bloomberg Intelligence.
The state-owned company is set to distribute $124bn in total dividends this year, a 66% increase since 2021.
Aramco has been pushing its expansion in key geographies to attract new investment to the Saudi downstream sector. It has recently signed an agreement with China’s Rongsheng Petrochemical) to expand its liquids-to-chemicals project at Saudi Aramco Jubail Refinery Company (SASREF).
It has also entered the Pakistani fuel retail market by acquiring a 40% stake in Gas and Oil Pakistan (GO).
The stock currently has a recommendation rating of 2.9 according to Yahoo Finance data, with consensus being ‘hold’. It is currently trading at SAR29.95 (£6.36) but the market puts its target price at SAR33.60 (£7.13)
The market expects Uber Technologies to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended March 2024.
Uber is expected to post a loss of $0.19 per share for the current quarter, representing a year-over-year change of -143.2%, according to Zachs Equity Research.
Revenues are expected to be $10.08bn, up 14.2% from the year-ago quarter.
The ride-hailing app was sued by thousands of London’s black-cab drivers this week in a suit seeking hundreds of millions of pounds, accusing it of unlawfully operating in the capital city.
Trading at $68.57, analysts have it at a $87.77 price target, with trader consensus being to ‘buy’ or ‘strong buy’ given the discount.
Bank of England’s interest rate decision – Thursday 9 May
Obviously not a stock but one the biggest market moving decisions in the UK. Threadneedle Street is not expected to cut interest rates this meeting but investors should look for hints from governor Andrew Bailey and the other members of the monetary policy committee (MPC).
Currently, interest rates have been frozen at 5.25% and have remained at that level for the past few months.
Financial markets put almost zero chance on a rate cut on 9 May, after the next meeting of the MPC. They are fully pricing a first move only in September, but some economists point to June.
Deutsche Bank economist Sanjay Raja said: “We expect the MPC to keep the bank rate on hold at 5.25% for a sixth consecutive meeting. But this doesn't mean that the May meeting will be uneventful. We expect the MPC to set the stage for a June rate cut.”
HSBC chairman Mark Tucker predicts that the BoE will lower interest rates by 1.5 percentage points by the end of next year. That would lower bank rate to 3.75%, from 5.25% today.
"We expect the ECB and Bank of England to cut rates in June, cutting by 150bps by year-end 2025. We expect the Fed to cut in September, cutting by 100bps by year-end 2025," Tucker said.
Last month, the Bank of England's chief economist Huw Pill highlighted that the economic outlook has not changed substantially but that cuts to interest rates may be 'somewhat closer' now than they were last month.
“Markets have recalibrated their expectations and now expect just two cuts this year, down to 5.00% in August and then 4.75% in December. The UK two-year gilt yield, which has an uncanny record of moving six to nine months before the Bank of England does, stands at 4.51%, to imply just three cuts in the next two years,” AJ Bell said.
The OECD has warned the UK that borrowing should remain expensive until the rate of price rises eases further and stays there.
"The fiscal and monetary policy mix is adequately restrictive and should remain so until inflation returns durably to target," the Organisation for Economic Co-operation and Development 's economic outlook for 2024 said.
