Top UK Stocks to Watch: Shell shares rise after boosting shareholder returns
Joshua Warner July 7, 2021 8:58 AM
Shell steps up shareholder distributions earlier than expected, Wetherspoons pays the price for not showing the Euros, Renishaw fails to find a buyer despite delivering strong growth, Redde Northgate ups its dividend as profits surge, and 888 reports a 10% jump in revenue.
Top News: Shell slashes debt thanks to rise in oil prices
Royal Dutch Shell said it is stepping up shareholder distributions after successfully reducing debt thanks to a rise in oil prices and an improved macro-economic outlook for the industry.
The oil giant has been prioritising a reduction in debt and has been aiming to cut its net debt pile down to $65 billion. Having slashed $4 billion off in the first quarter, Shell ended March with net debt of around $74.4 billion, and it now seems that the company is extremely close to its target.
That is significant as, once the debt target has been hit, Shell plans to raise shareholder distributions through dividends and buybacks to 20% to 30% of its cashflow from operations. The timing is important too considering that has increased, with cashflow rising to $8.3 billion in the first quarter of 2021 from only $6.3 billion in the fourth quarter of 2020.
‘As a result of strong operational and financial delivery, combined with an improved macro-economic outlook, Shell will move to the next phase of its capital allocation framework and, subject to final board approval, increase total shareholder distributions to within the range of 20-30% of CFFO, starting at the Q2 results announcement. The level of additional distributions will be determined with full visibility of the Q2 financial results,’ Shell said this morning.
‘In the second quarter, Shell expects to have further reduced its net debt, although the extent of the reduction will be moderated by working capital movements. In conjunction with the increased distributions, Shell will retire its net debt milestone of $65 billion and will continue to target further strengthening of its balance sheet and AA credit metrics,’ Shell added.
The reduction in debt and boost to shareholder returns has come sooner than expected, with analysts having expected this to happen later this year.
Shell also said it would stick to its $22 billion spending budget this year.
The news came as Shell updated its expectations for the second quarter ahead of publishing its results.
It said the Integrated Gas division will produce between 900,000 to 960,000 barrels of oil equivalent per day in the quarter, while LNG liquefication volumes will drop to 7.1 million to 7.7 million tonnes due to unplanned maintenance work. Still, it warned its trading and optimisation results would be ‘significantly below average’ and in-line with the first-quarter.
Its Upstream business is thought to have produced between 2.25 and 2.3 million barrels per day in the quarter. Oil Products is expected to benefit from higher marketing margins in the period and should improve from the prior quarter, with sales volumes to be between 4.0 million to 5.0 million per day. Lastly, margins in the Chemicals business should stay broadly flat from the previous quarter with sales volumes of between 3.5 million and 3.8 million tonnes.
Where next for the Shell share price?
Shell share price traded relatively rangebound through April and May this year before starting to trend higher from early June.
The share price has traded in an ascending channel over the past 5 weeks. It trades above its upward sloping 50 & 100 sma in a bullish chart.
The RSI is above 50 and pointing higher suggesting that there could be more upside to come.
Immediate resistance can be seen at 1480p the upper band of the ascending channel, a breakout her coud see the price test 1520p the year to date high. Beyond here, 1540p could offer some resistance the pandemic high April 2 2020. A breakthrough here could see the price start to aim towards 1700p a level last seen in March last year.
On the flip side, support can be seen at 1420p the mid-point in the ascending channel. It would take a move below 1350p to negate the near-term uptrend.
Wetherspoon sees recovery in sales knocked by Euros 2020
Pub chain Wetherspoon said its decision not to show the Euros 2020 football tournament has affected sales in recent weeks and conceded it will remain in the red in the current financial year despite an uptick in sales since its bars reopened.
The company opened around 500 of its pubs when it was allowed to start serving customers outdoors again. Like-for-like sales were down around 49% between April 12 and May 16. It said it had managed to add more outdoor seating to adapt.
It then started to serve customers indoors again on May 17, albeit with restrictions in place, and this saw a recovery in sales with like-for-likes down just 14.6% in the period to July 4, when its pubs were allowed to fully reopen.
Around 850 Wetherspoon pubs have been open since July 4, leaving just 10 of them – mostly in airports - still closed.
The reopening of its estate led to a further recovery in sales, with like-for-likes down just 8.1% between May 17 and June 10.
However, the recovery in sales took a knock once the Euro 2020s tournament kicked-off on June 11 as Wetherspoon pubs have not been showing any matches ‘apart from a limited number of exceptions’. This meant like-for-likes were down 20.8% between June 10 and July 4.
Wetherspoon said it expects annual sales in the year to July 25 to be roughly in-line with its 2019 financial year, but admitted that it will remain loss-making at the bottom-line. It did not provide an outlook despite the fact it will be able to start operating as normal later this month when all coronavirus-related restrictions are removed.
It said it would end the financial year with net debt of around £833 million and said it was looking to secure more covenant waivers from its banks to give it headroom during the new financial year that will start later this month.
The pub chain also said it has a pipeline of 75 projects, made up of 18 new pub openings and 57 extensions or upgrades to existing sites. It said that, once these projects are completed, it plans to launch a new ‘similar range of projects’ that will require around £750 million worth of investment over a decade, which it said would create around 20,000 new jobs.
Wetherspoon shares were trading 0.7% lower in early trade this morning at 1234.0p.
Renishaw fails to find suitable buyer despite improved performance
Renishaw said it has closed the formal sales process launched in March after reviewing several proposals and deciding none of the potential offers were good enough, but said it remains hopeful of finding a suitable buyer.
The company, which makes precision instruments, was put up for sale by its owners months ago as chairman David McMurty and his deputy John Deer, who founded the business back in 1973 and own over half of the company, looked to sell-up.
However, it has not been able to strike a deal and has now ended the process.
‘At the start of this process we made it very clear that, with the board, we were focused on ensuring that we find the right new owner for our business. Whilst the formal sale process did not result in a new owner for Renishaw, we are satisfied that it ensured a thorough and rigorous process that enabled us to evaluate a wide range of potential buyers,’ said McMurty.
The pair said they remain committed to Renishaw and have no intention of selling their shares in the company ‘in the foreseeable future’.
‘We continue to enjoy good health and as we consider the future of our shareholdings in due course, we intend to follow an orderly process that continues to take into account the interests of all stakeholders,’ McMurty stressed.
This means Renishaw will continue to run as normal for the time being. It said revenue should come in around £562 million to £567 million in the year to the end of June, with adjusted pretax profit of between £116 million and £121 million.
That will be a huge improvement from the £510.2 million in revenue and profit of £48.6 million booked in the last financial year, when results were hit by the pandemic. Still, while revenue will still be marginally below pre-pandemic levels, profits have already returned to pre-pandemic levels of growth this year. It said it ended June with a record order book, which bodes well for the new financial year.
Renishaw shares were trading 1.1% higher in early trade this morning at 5110.0p.
Redde Northgate raises dividend after surge in profits
Redde Northgate said it performed better than expected in its last financial year and raised its dividend as it announced it has identified more synergies from its merger.
The company, which supplies vehicles and automotive services to businesses and was formed by the merger between Northgate and Redde back in 2020, said revenue was up 42.4% in the year to the end of April to £1.10 billion from only £779.3 million the year before.
Underlying pretax profit jumped 58% to £93.2 million from £59.0 million and, on a reported basis at the bottom-line, profit quintupled to £67.2 million from only £13.5 million.
Redde Northgate said it performed better than expected despite the problems posed by the pandemic.
The company said this prompted it to raise its final dividend to 12.0 pence from only 6.8p the year before, taking the total payout for the year to 15.4p versus 13.1p.
The news sent Redde Northgate shares up 2.4% in early trade this morning to 408.3p.
The company also achieved its target to deliver £15 million worth of synergy savings from the merger during the year, which in turn was raised from an original goal of £10 million. It said it now believes it can find another £5.5 million of savings, taking total annualised savings to £20.5 million. Revenue synergies are also gaining momentum.
‘There is significant sustainable compounding growth and quality earnings potential in the combined business. The actions and measures we are taking are already creating value which will be further enhanced as we deliver on our priorities. Recent trading has been strong and we enter FY2022 from a position of strength,’ chief executive Martin Ward said.
Redde Northgate said momentum has continued to build during the first two months of the new financial year and that it expects to deliver further growth.
888 to grow profits despite upping investment as revenue jumps 10%
Online gambling company 888 Holdings said revenue jumped 10% in the second quarter of 2021 as growth from its casino and sports-led betting helped cushion continued declines in sales from other businesses.
The company said revenue was up 10% at constant currency but, thanks to favourable forex movements, 20% higher on a reported basis.
‘The second quarter of the year was slightly ahead of board expectations, reflecting continued momentum in the business, and favourable exchange rate movements,’ 888 said.
B2C revenue was up 11% at constant currency, led by a 13% rise in revenue from Casino games and a 94% jump in Sports-led betting thanks to the busy sporting calendar in recent weeks. Notably, Poker and Bingo revenue was down but 888 said this was because of ‘exceptionally strong’ comparatives from the prior year, when people shifted to other forms of gambling when sports were postponed.
B2C revenue was up 21% on a reported basis.
B2B revenue, sourced from work on providing the tools needed for other businesses to launch their own casino or gaming operations, continued to be depressed. Revenue was down 13% at constant currency and 6% on a reported basis.
The update will raise confidence ahead of 888’s interim results being released on September 1.
‘For the second half of the year, the board remains mindful of the potential impact of greater than normal seasonality in the summer post COVID-19, retail and leisure venues reopening across international markets, and the previously disclosed expected impact of regulatory and compliance changes, which are weighted towards the second half of the year. Since 17 May, when UK retail and leisure venues reopened, average daily revenues in the UK have, as expected, been approximately 20% lower than the year-to-date period before that,’ said 888.
‘The board expects adjusted Ebitda for the full year to be slightly ahead of the prior year, despite the increased investments in the business,’ it added.
888 delivered adjusted Ebitda of $155.6 million in the last financial year, which in turn jumped an impressive 69% from the year before.
888 shares were trading 4.3% lower in early trade this morning at 395.1p.
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