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FTSE held back by Shell profit warning

FTSE held back by Shell profit warning

Shares in Royal Dutch Shell (RDSb.L), the biggest company on the FTSE 100 by market cap, weighed on the blue chip index on Friday morning after telling investors that fourth quarter earnings would be significantly lower than last year.

The company said it expects adjusted earnings for the three months to the end of December of $2.9 billion, much lower than expected by the City. Shell, a favourite among dividend-seeking investors, blamed oil and gas prices and difficult industry refining conditions.

Ben van Beurden, Shell’s new chief executive, said: ‘Our 2013 performance was not what I expect from Shell. Our focus will be on improving Shell's financial results, achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.’

Andrew Whittock, an analyst at Liberum, said the problems probably weren’t a one-off. But he added ‘good news could be that this set back will increase pressure on management to improve performance and not just carry on spending.

‘As long as dividend is unaffected, our PT unlikely to change much from 2140p and we retain Hold with preference for BP,’ Whittock added.

Most brokers agree with Whittock that Shell is a 'hold'. But some fund managers and analysts are now warming to the stock. Barclays' Lydia Rainforth said that patience was needed from investors after an 'annus horribilis' for the company. 'Shell remains our top pick for 2014' she said. 'The difficulties of 2013 make it easy to forget that Shell still starts from a stronger free cash flow position than the majority of the peer group.'

Shell shares - which have risen just 3.5% over the past year - dropped 3.2% to £22.31, constraining the FTSE 100 which was flat at 6,815.

The blue chip index has strengthened over the past week as investors put aside worries over valuations and the tapering of US stimulus.

Today’s lack of momentum, however, follows losses on Wall Street and in China after investors were dealt disappointing earnings updates from US banks including Goldman Sachs.

Other losers included FirstGroup (FGP.L), the bus and rail operator which is coming increasingly under pressure to break up from US hedge fund Sandell. Shares dropped 2.1% to 139p after the company reported a Q3 update that was overall in line with City expectations, but nonetheless contained elements that disappointed analysts

Joe Spooner, an analyst at Jefferies, said: 'Given the dependence of the recovery plan on First Student, we believe another setback in the unit is more meaningful than its direct implication'.

Pound shoots up as retail sales soar

The pound was the stand-out winner on currency markets after UK retails sales surged in December. Sterling jumped 0.5% higher to $1.6434 after the official numbers showing monthly growth of 2.6% in December. That's 5.3% higher than December 2012.

Small stores showed higher growth than their larger competitors, the Office for National Statistics reported.

Alan Clarke, an economist at Scotiabank, summed up: 'This is not about to propel GDP up to above 1% in Q4 - nonetheless it is a helpful outcome in the face of the dive in construction last week.'

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