Nick Raynor, investment adviser at The Share Centre, takes a look at Barclays, BP and Associated British Foods who reported today and outlines what their results mean for investors.
Barclays’ results were slightly disappointing as profits fell below expectations. Surprisingly, the weakness came from Barclays Capital which is the main driver of profits and revenue for the bank.
These are tentative times for Barclays and one more poor quarter could lead to a full year downgrade. However, profit levels are still reasonably high and Barclays remains our preferred play in the banking sector. Investors seeking exposure to this turbulent sector should be attracted by its ability to offer a dividend, its strong profit growth and its international exposure.
Profits have fallen further for BP during Q1 as the cost of the clean-up in the Gulf of Mexico continues to mount up. This fall was expected and is likely to continue in to Q2. BP is currently selling off large amounts of its assets and until this strategy is completed it is difficult to predict future profit level.
However, the oil giant did make a profit of $7.185bn during Q1 as high oil prices had a positive affect – our concern is what will happen if these begin to fall?
We currently list BP as a ‘hold’ for investors. Although the share price is holding value, we don’t expect any rise in the short term. There may still be some nasty surprises to emerge from the US and the cost of the clean-up is still rising, however a quarterly dividend is expected and high risk investors may wish to take a small stake.
Continued pressures on the UK consumer have restricted the level of growth in profits and revenue for Associated British Foods during Q1. Despite an increase in growth from the company’s two main bread winners, Primark and Sugar, this is still a disappointing update. Sadly, we feel this can only get worse as the remainder of 2011 is expected to see costs rise and margins squeezed by the increased price of cotton.
Associated British Foods increased its dividend by 4% to 7.9p, but this did little to reassure investors as early morning trading saw the share price fall 5%. Off the back of these results we have downgraded ABF and now recommend investors sell this retailer. Going forward, we are cautious of the retail sector as a whole and suggest investors can make their money work better elsewhere.