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Shell drags down FTSE on $22bn coronavirus hit

30 June 2020

(Update) Shell will write off assets worth up to $22bn after coronavirus crisis hammered demand for oil and gas. Life sciences fund Syncona boosted by revaluation of portfolio company Freeline.

The FTSE 100 has fallen into the red, dragged down by Shell (RDSB) after the oil major said it would write off up to $22bn (£18bn) of its assets after the coronavirus crisis hammered demand.

The UK blue-chip index fell 43 points, or 0.7%, to 6,182, with Shell among the heaviest fallers, down 2.3% at £12.41. Rival BP (BP) slid 2.4% to 307.3p.

Nicholas Hyett, analyst at Hargreaves Lansdown, said Shell’s announcement was not a surprise.

‘The real question going forward is whether Shell’s fairly downbeat expectations are downbeat enough,’ he said. ‘Oil prices have spent a large part of the last five years under $60 a barrel and while the collapse of several large US shale names might reduce global supply, the outlook for demand is hardly robust.’ 

Bucking the fall was Smiths Group (SMIN), up 6.4% at £13.81 as the technology firm reported a growth in organic revenue and outlined a restructuring programme to boost margins.

Standard Life Aberdeen (SLA) rose 3.7% to 275.8p after the fund group announced the departure of boss Keith Skeoch, to be replaced by former Citi executive Stephen Bird.

Investors also digested glum news on the UK economy, with the Office for National Statistics (ONS) reporting the UK economy fell by 2.2% in the first three months of the year. That period includes the first week of the lockdown imposed to contain the spread of the coronavirus pandemic, but has already been eclipsed 20.4% slump the ONS estimated last month for April.

Launch of a local lockdown after a spike in coronavirus cases in Leicester also weighed on sentiment. Pubs and restaurants will remain closed in the area despite restrictions in England being lifted on 4 July and people living in Leicester have been advised against all but essential travel.

Despite today’s fall the FTSE 100 is on track for its best quarter since 2010, post the global financial crisis, adding around 10% over the three months. Global equities, as measured by the MSCI All Country World index, have surged 18% between April and June, clawing back the losses made in the March sell-off despite the number of Covid-19 cases hitting 10 million worldwide.

Spreadex analyst Connor Campbell said: ‘In another sign of just how untethered to reality the markets are - or rather, how bound they are to the constantly shifting relatives of “good” and “bad” news - globally stocks have had their best quarter for 11 years.

‘This as investors swallowed the initial Covid-19 panic and went about trying to force through a rally, headlines be damned. At the moment, however, it looks like indices are going to be shaving a few points off that quarterly increase.’

Stocks outside the FTSE 100, which are generally more exposed to the UK economy, fared better overall. The FTSE Mid Cap index rose 22 points or 0.1% to 17,220.78, although the Small Cap benchmark sipped 14 points or 0.3% to 5,017.76.

Energean (ENOG) jumped 16.6% to 517p after oil explorer agreed to exclude the Norwegian assets from its acquisition of Italian upstream operator of Edison, slashing the bid price from $850m to $284m.

Syncona leads trusts

Syncona (SYNC ) rose 8.6p or 3.6% to 248p after portfolio company Freeline raised $80m from institutional investors on a higher valuation that added 4.6p to the life sciences fund’s net asset value (NAV). The company, in which Syncona is the majority shareholder, is also considering a US stock market flotation later this year to raise more capital.

RIT Capital Partners (RCP ) added 8p or 0.5% to £17.80 after Stifel analysts upgraded the Rothschild-backed multi-asset fund to ‘positive’ from ‘neutral’. They said a 19% fall since November had burst its ‘premium bubble’ and left the relatively defensive portfolio on a much better value 7% discount.

Civitas Social Housing (CSH ) gained 2.2p or 2% to 109.8p after annual results showed a 0.7% rise in NAV for the year to 31 March, with virtually no impact from Covid-19 as 99% of rents were collected in the second quarter.

NB Global Floating Rate Income (NBLS ) firmed 0.4p or 0.5% to 80.8p after debt fund announced a review of investment policy and said it would consult shareholders to find a proposition that targeted attractive risk-adjusted returns. 

Pollen Street Secured Lending (PSSL ) shed 10p or 1.3% to 730p as debt fund told investors at its annual general meeting that the appointment of a new fund manager was ‘being progressed’. PSSL remains in an offer period as Waterfall Asset Management continues to do due diligence on its potential bid approach.

Mobius (MMIT ) slipped 1p or 1.2% to 89.8p after Greg Konieczny, one of three co-founders of its fund manager Mobius Capital Partners was leaving. The investment team will continue to be led by Mark Mobius and Carlos Hardenberg.

NextEnergy Solar Fund (NESF ) eased 0.5p or 0.5% to 107.5p after annual results confirmed a 12% reduction in NAV due to falling power price forecasts. The alternative income fund paid 6.87p of dividends in the year to 31 March and although cash cover for the payouts fell from 1.3 to 1.2 times the target for this year has been lifted to 7.05p. However, the policy of linking increases to the retail prices index (RPI) is under review and the company has proposed doubling its limit in overseas investments to 30%. 

Schroder Income Growth (SCF ) gave up 2.5p or 1% to 244.5p as the Sue Noffke managed fund declared an unchanged interim dividend of 2.5p per share and said it would keep future payments under close review. Payouts so far this year have been covered by revenues and the board has not had to dip into revenue reserves of 12.5p per share.

Stable mate Schroder UK Mid Cap (SCP ) softened 3p or 0.7% to 440p as it also held its interim dividend at 3.8p per share despite a 29% plunge in investment income from dividend cuts in 2020. It will have nine months of revenue reserves after the dividend is paid and will assess its final payout at the end of the year when it hoped for more clarity on UK dividend prospects.

Fund managers Andy Brough & Jean Roche expect serviced office space specialist IWG (IWG), up 2.2% to 267.8p, to do very well after its recent fund raising. 

They also expressed confidence about prospects for builders Crest Nicholson (CRST) and Redrow (RDW), down 1.7% and 3.7% respectively; casual dining specialist Restaurant Group (RTN), off 3.4%, and retailers Superdry (SDRY), unchanged at 144.8p, and Ted Baker (TED), 2.4% lower.




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