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BP surges after dividend cut but Diageo drags on FTSE

4 August 2020

The FTSE 100 has edged higher after shares in BP surged following a first dividend cut in a decade, while Diageo dropped on a a disappointing earnings update.

The FTSE 100 has edged higher after shares in BP (BP) surged following a first dividend cut in a decade, while Diageo (DGE) dropped on a a disappointing earnings update.

The UK blue-chip index rose six points to 6,038, with BP topping the index, up 7.5% at 302.3p.

The oil giant halved its dividend from 10.5 cents to 5.25 cents a share, its first cut in a decade, after swinging to a record second quarter loss of $6.7bn as the coronavirus pandemic hammered demand for oil. The loss was, however, in line with analyst expectations and due largely to a $6.5bn writedown to the value of its oil and gas exploration assets as the price of oil continues to weigh.

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said investors were buoyed by BP’s plan for a ‘major strategic rethink’ that focuses on ‘getting the most out of its remaining oil field while investing in a low carbon future’.

The rise in BP shares failed to offset bad news from beer and spirits maker Diageo, which has suffered a fall in sales this year as restaurants and pubs were forced to close under Covid-19 lockdown rules. The shares slid to the bottom of the main index, dropping 5.9%, or 176p, to £27.04 as it was forced into a £1.3bn writedown.

Chris Beckett, head of equity research at Quilter Cheviot, said Diageo delivered slightly better earnings and slightly worse sales than expected. Group sales for the year were down 8.4% and there was ‘greater operational gearing’ than expected which pushed profits down 14.4%. Earnings per share fell 16.4%.

‘We expect consensus numbers to fall on these results,’ he said. ‘Looking through the pandemic impact, the stock trades on 22 times expected earnings for 2021 which we believe is attractive for a quality company in an advantaged category.’

The FTSE 250 index managed to resist a slide back into the red, gaining 36 points, or 0.2%, to 17,194.

EasyJet (EZJ) was the biggest winner, jumping 10.2%, or 51p, to 559p, after the budget airline added summer flights to its schedule as bookings continue to rise. Planes are now set to fly at 40% capacity rather than the previously announced 30%.

Engineering group Babcock (BAB) slid to the bottom of the mid-cap index, 11.7%, or 34p, to 254p. Shares reached a 14-year low after first quarter profits sunk and the company scrapped its dividend.

Property dividend revived

BMO Commercial Property Trust (BCPT ) rallied 3.4p or 5.7% to 63.6p after the real estate investment trust reinstated its monthly dividend after a four-month suspension. The payout of 0.25p per share is half the previous level and comes as the company collected 83% and 68% of second quarter and third quarter rents.

Life sciences fund Syncona (SYNC ) advanced 10p or 4% to nearly 297p after Freeline, the unquoted gene therapy company in which it is the majority shareholder, said it was looking to price its shares between $16 and $18 in its forthcoming US flotation. This would add between £31.6m and £58.2m to Syncona’s stake, equivalent to 4.7p-8.7p per shares, said Numis Securities.

Investment company news brought to you by Citywire Financial Publishers Limited.

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