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The Expert View: BP, Rolls-Royce and Centrica

Our daily roundup of analyst commentary on shares, also including National Grid.

by James Sutton on Aug 02, 2017 at 05:00

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Key stats
Market capitalisation£90,159m
No. of shares out19,757m
No. of shares floating19,597m
No. of common shareholdersnot stated
No. of employees74500
Trading volume (10 day avg.)27m
Turnover138,517m USD
Profit before tax86m USD
Earnings per share0.00 USD
Cashflow per share0.59 USD
Cash per share0.92 USD

‘Solid’ second quarter for BP, says Jefferies

Shares in BP (BP) jumped 3% to 459.3p yesterday as the oil giant reported a turnaround in the second quarter. A profit of $144 million (£109 million) in the three months to the end of June was a big swing on the $1.4 billion loss in the same period last year.

Successful production at BP’s new West Nile Delta and Quad 204 sites boosted the figures for the firm.

Jefferies equity analyst Jason Gammel said that the results were ‘solid’ in the second quarter, noting that ‘the underlying growth in the fuels business is encouraging’. He reiterated his ‘hold’ recommendation, adding that ‘valuation is not challenging’.

However, Gammel also warned that there might be challenges ahead. ‘The company’s ability to de-lever the balance sheet remains a concern,’ he said, with BP having ended the quarter with a net debt/capitalisation ratio of 28.8%.

Key stats
Market capitalisation£11,315m
No. of shares out5,592m
No. of shares floating5,582m
No. of common shareholdersnot stated
No. of employees38278
Trading volume (10 day avg.)19m
Profit before tax£1,672m
Earnings per share31.19p
Cashflow per share50.92p
Cash per share34.51p

Centrica ‘on track’ despite falling profits

It was a double-whammy from Centrica (CNA) yesterday, as the company announced an increase in electricity prices and released its half-year results.

Shares rose by 2.5% to 203.4p on the news, despite the firm revealing that operating profits were down by 86% to £252 million.

The slump was attributed to exceptional costs in its Canadian exploration and production division, the closure of the Rough gas storage facility and the re-measurement of energy contracts.

‘Centrica is part way through a transformation’, said George Salmon, equity analyst at Hargreaves Lansdown.

‘Chief executive Iain Conn’s long-term vision is for the group is to step away from the potentially volatile world of offshore exploration and production, and focus on its UK and US retail operations.

‘This should mean the visibility of future cash flow improves, and the chances of being caught up in 2014/15-style slide in the oil price diminish.’

Key stats
Market capitalisation£32,351m
No. of shares out3,426m
No. of shares floating3,282m
No. of common shareholdersnot stated
No. of employees22132
Trading volume (10 day avg.)10m
Profit before tax£1,810m
Earnings per share52.24p
Cashflow per share94.98p
Cash per share249.37p

Berenberg upgrades National Grid as share price falls

Berenberg has changed its recommendation from ‘hold’ to ‘buy’ on the National Grid (NG), with analyst Andrew Fisher arguing that ‘the share price has simply fallen too far’.

The price has tumbled since the beginning of June, falling 13.2% from a high of £10.89 to 945p yesterday.

‘The stock has been weak since going ex the ordinary and special dividends,’ Fisher said, adding that the spike in UK bond yields in late June and the drop in consensus earnings per share expectations had driven down the share price even further.

Fisher argued investors had overreacted. ‘Fundamentally little has changed and, importantly, dividend expectations are still anchored to the group’s achievable retail prices index-linked growth target,’ he said, maintaining his £10.50 target price.

Key stats
Market capitalisation£18,001m
No. of shares out1,841m
No. of shares floating1,828m
No. of common shareholdersnot stated
No. of employees49900
Trading volume (10 day avg.)5m
Profit before tax£-4,032m
Earnings per share-220.09p
Cashflow per share-174.78p
Cash per share149.01p

‘No time for complacency’, warns Rolls-Royce boss

Shares in Rolls-Royce (RR) traded at a 26-month high yesterday, up 8.8% at 966.5p in what was easily their best day of the year. The firm had just reported profits of £1.9 billion in the six months to the end of June, reversing the £2.2 billion loss made over the same period last year.

City Index analyst Ken Odeluga attributed the turnaround to the ‘root-and-branch revamp’ of the firm two years ago and added that the £339 million fall in the free cash flow result – considered a significant indicator of success for Rolls-Royce – was ‘not as negative as the £585 million expected’.

‘With profitability and cash generation now all-but cemented on a more sustainable footing, similar upside into the second half of the year may still be a big ask, but a significant drift lower is unlikely.’

Rolls-Royce chief executive Warren East adopted a more cautious tone, warning that ‘this is no time for complacency’.

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  • BP PLC (BP.L)
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  • Centrica PLC (CNA.L)
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  • Rolls-Royce Holdings PLC (RR.L)
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  • National Grid PLC (NG.L)
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