The London’s FTSE 100 surged after two days of losses (on 15th May 2020, before the market close) as a surprising jump in China’s factory output boosted up the energy stocks, while investor sentiments were dampened with apprehensions over prolonged economic downturn due to Covid-19 contagion. Meanwhile, Central Bank and regulatory authorities have advised Companies in Banking and Financial sector to freeze or slash dividend payments. Also, the Government have introduced several stimulus packages and various programmes to support businesses such as Covid Corporate Financing Facility, Coronavirus Business Interruption Loan Scheme, Bounce Back Loan scheme, Coronavirus Job Retention Scheme, among others.
Yesterday, the International Energy Agency indicated the global demand return in the second half of 2020. Meanwhile, even the blue-chip stocks are postponing their capital commitments, conserving their liquidity position and bolstering their capital structure to weather the uncertainties presented by the Coronavirus mayhem.
Today, we are going to discuss three FTSE-100 listed stocks from diverse industries in light of prevailing market conditions – Royal Dutch Shell (LON: RDSA), Reckitt Benckiser Group PLC (LON: RB.), Barclays (LON: BARC). All these three stocks surged today (at the time of writing, 10.00 AM GMT) around 2.29 per cent (RDSA), 1.10 per cent (RB.), 3.29 per cent (BARC), against the previous day closing. Let us quickly take a glance over their operational and financial position to understand their trading potential and business growth trajectory.
Key Fundamental Statistics
FTSE 100 Index Statistics
FTSE 100 Index has delivered a negative return in the past 1 year. The 1-year price change stood at negative 20.71 per cent, and YTD price change of negative 23.88 per cent. Last twelve months P/E multiple of FTSE-100 stood at 14.04x, with an annualized dividend yield of 4.49 per cent. Total market capitalization stood at around GBP 1.45 trillion.
Blue-Chip Stocks: Share Price Return Matrix
Royal Dutch Shell PLC (LON: RDSA)
Royal Dutch Shell PLC is operating as a petrochemical and energy company, which is involved in the exploration, refining, production and marketing of oil and natural gas. The Company was formed in 1907 and currently, it operates in over 70 countries with over 83,000 employees.
(Source: Company Website)
Segments at a Glance
RDSA Group primarily splits its business into four segments - Upstream, Downstream, Integrated Gas, and Corporate. Besides these segments, the Company has Projects & Technology division which manages the key projects and develops innovative solutions for their Upstream, Integrated Gas, and Downstream activities.
(Source: Company Website)
Recent Developments – Returning to Shareholders
- 30th April 2020: RDSA Group announced an interim dividend for the first quarter of 2020 of USD 0.16 per ordinary shares (for A Share and B Share each).
14th April 2020: The Company announced the repurchase of the following own shares for cancellation:
- 183,670 shares at Volume weighted average price of EUR 17.0991 per share.
- 421,312 shares at Volume weighted average price of EUR 17.0903 per share.
- 838,190 shares at Volume weighted average price of GBX 1,438.01 per share.
- 114,809 shares at Volume weighted average price of GBX 1,435.99 per share.
- 108,228 shares at Volume weighted average price of GBX 1,435.38 per share.
- A Share
First Quarter of 2020 (as on 30th April 2020) – Positive Working Capital Movements of $7.5 billion and almost $16 billion of Shares Bought Back Since 2018.
- For the first quarter of 2020, the cash flow from operations was $7.4 billion (excluding working capital movements), reflecting lower earnings and higher cost-of-sales adjustment, partially offset by higher cash inflows related to lower tax payments and commodity derivatives, against Q1 FY19.
- The free cash flow for the first quarter of 2020 increased to $12.1 billion as compared with the corresponding period of the last year (Q1 FY19: $4 billion).
- In Q1 FY20, the earnings attributable to shareholders stood at $2.9 billion (excl. identified items) and it was impacted by lower price and margin environment.
- The return on average capital employed (ROACE) was 6.1 per cent, while it was impacted by lower earnings.
- Cash capital expenditure was stated at $5 billion in the first quarter of 2020.
- The resetting of the quarterly dividend from $0.47 per share to $0.16 per share was announced in order to protect and improve the resilience of the company.
- Since 2018, Shell has bought back almost USD 16 billion in shares for cancellation.
Outlook – Reflecting Decent Short Term Scenario
In Oil Products segment, the refinery utilisation is projected to be 60%-70%, and sales volumes are expected to be 3,000-4,000 thousand b/d in Q2 FY20. In Integrated Gas division, the production for Q2 FY20 is expected to be 840-890 thousand boe per day, and LNG liquefaction volumes for Q2 FY20 are expected to be 7.4-8.2 million tonnes. Excluding identified items, the corporate segment earnings are projected to be a net expense of $800-$875 million in Q2 FY20. In Chemical business, the manufacturing plant utilisation is expected to be 70%-80%, and sales volumes are expected to be 3,500-4,100 thousand tonnes in Q2 FY20. Shell is continuously investing in generating power from natural gas and renewable sources. Moreover, the Company has completed the acquisition of two blocks in the Vaca Muerta, Argentina. However, with COVID-19 outbreak, there could be macro-economic fluctuations regarding prices and demand for oil, gas and products.
Reckitt Benckiser Group PLC (LON: RB.)
Reckitt Benckiser Group PLC a consumer goods company with global operations. The Group operates through two major segments - Health and Hygiene Home. The major brands of the Company include Dettol, Harpic, Lysol, Mortein, among other hygiene and household products. It employs over 42,000 people globally and its brands are sold in over 190 countries.
(Source: Presentation, Company Website)
The Group is domiciled in the UK; although, most of its revenue comes from the United States and Greater China.
Significant Updates of 2020
- 12th May 2020: The Reckitt Benckiser Group announced the pricing of multi-tranche senior notes. The net proceeds of offerings will be used for general corporate purposes.
- 9th April 2020: The Group appointed the new Chief Financial Officer (CFO) to Jeff Carr as Adrian Hennah stepped down from its position.
(Source: Annual Report, Company Website)
First Quarter of 2020 (as on 30th April 2020) – Reflecting Strong Growth and Decent Progress
- In March and April, the Company is reflecting healthy consumer demand, with investing in capacity to meet growing demand.
- The Group’s reported revenue for the first quarter of 2020 was increased by 12.3 per cent (up 13.3 per cent on LFL basis and down 1 per cent on FX basis) to £3,544 million, due to robust demand for many of the health and hygiene products.
- For Dettol, Lysol, Mucinex, Nurofen, and VMS, Reckitt Benckiser has seen sturdy demand in the first quarter of 2020, despite the uncertainty in several markets.
- The net revenue from e-Commerce surged by over 50 per cent, driven by an increase in Health and Hygiene division, mainly in 2020 March as consumers switching to online channels during the lockdown.
(Source: Q1 Update, Company Website)
Outlook – Decent Business Growth Trajectory Story
The Company had an encouraging start to the new financial year, despite the COVID-19 outbreak. Considering the health emergency amid the of Coronavirus contagion, the company is likely to benefit since they cater to both hygiene and health market. Moreover, Coronavirus pandemic is set to drive the market for hand sanitizer, masks, and other hygiene and personal care products in FY20. At the same time, the group has seen demand surge for their Dettol and Lysol products. Presently, its supply chain is also flexible and resilient to meet the increasing demand. Looking to the medium-term period, the outlook is sustained with mid-single-digit growth in organic revenue and mid 20’s margins by 2025.
Barclays PLC (LON: BARC) – Performing Resiliently with Diversified Business Model
Barclays PLC is a FTSE 100 financial services and investment banking Company. It majorly deals in operations related to Consumer, Corporate and Investment Banking. The Group is domiciled in the United Kingdom; however, it is diversified by geography, clients and customers. The Company has two business divisions - Barclays UK and Barclays International.
Glimpse of Business Divisions
- Barclays UK: It consists of operations related to UK Personal & Business Banking and Barclaycard Consumer UK businesses.
- Barclays International: It manages operations of Corporate and Investment Bank, Cards & Payments businesses, and International Consumer.
- Barclays Execution Services: Manages support services related to technology, operations of the entire Group.
(Source: Presentation, Company Website)
Recent Significant Regulatory Updates
- 30th April 2020: The Barclays Group announced that its base prospectus for £60,000,000,000 Debt Issuance Programme has been approved by the FCA (Financial Conduct Authority).
- 31st March 2020: The Board of Barclays PLC suspended interim dividend and share buyback program for the FY 2020, to conserve liquidity for mitigating the uncertainties presented by Coronavirus mayhem.
First Quarter of 2020 (as on 29th April 2020) – Improved Performance through Diversification
- The Group delivered resilient operating performance (despite the initial impacts from the COVID-19 pandemic) with the earnings per share (EPS) of 3.5 pence (excl. litigation and conduct) and Group RoTE (return on tangible equity) of 5.1 per cent.
- The total income increased by 20 per cent to £3 billion in Q1 FY20, due to robust performance in Corporate and Investment Bank (CIB) (up 44 per cent). Excluding litigation and conduct, the cost to income ratio stood at 52 per cent in Q1 FY20 (Q1 FY19: 62 per cent).
- CET1 ratio for Q1 FY20 decreased to 13.1 per cent (December 2019: 13.8%), primarily reflecting RWA (Risk-Weighted Assets) growth, partially offset by profits and cancellation of dividend.
- Led by positive reserve movements (including currency translation reserves) and retirement benefit re-measurements, the tangible net asset value (TNAV) per share surged to 284 pence in Q1 FY20 (December 2019: 262 pence).
- Barclays has shown a decent liquidity position, with an LCR (liquidity coverage ratio) of 155 per cent and liquidity pool of £237 billion.
Outlook– Reflecting Decent Scenario for Long Term but Short-Term Uncertainty Prevails
Including headwinds from COVID-19, 2020 performance is expected to reflect the challenging environment. Led by macroeconomic downturn caused by the COVID-19 pandemic and lower interest rate environment, CC&P (Consumer, Cards & Payments) and BUK (Barclays UK) income headwinds are projected to continue for the rest of the year 2020. The Group has a target cost to income ratio to stay below 60 per cent over time and target of over 10 per cent RoTE. The diversified customer base of customers plays a critical role in the growth of the bank. The Bank is planning to diversify the business with less capital-intensive structure. The management will decide on capital returns policy and future dividend at year-end 2020. Barclays ambition is to be a net-zero bank by 2050.
Comparative Stock Performance of RDSA, RB., and BARC with FTSE-100 Index
(Source: Refinitiv, Thomson Reuters)
In the last one-year, RDSA and BARC share price have decreased by 50.63 per cent and 38.13 per cent, respectively. While RB. stock has increased by 12.63 per cent in the last one year. FTSE 100 index performance was dismal in the last one year as delivered negative 20.33 per cent return.