Market Report: Shell shocks market as profits dive 60 per cent

  • @LauraHChesters

Investors in the world's second-biggest listed oil group were yesterday left shell-shocked after news of a 60 per cent fall in profits. Royal Dutch Shell's second-quarter results were 23 per cent below analysts' consensus forecasts and Richard Curr, head of dealing at broker Prime Markets, said they "came totally out of the blue".

The drop was due mainly to extra costs in its US shale oil and gas operations as well as costs relating to disruptions in Nigeria, while a weaker oil price also didn't help.

Liberum Capital said the results "highlight the big issue" of whether there is the "cash available to sustain a progression in dividend".

But Neill Morton at Investec told punters not to panic. "The key lesson from both BP [which reports on Tuesday] and Shell's second-quarter results is not to get too carried away with single, blowout quarters … Despite the miss, we remain positive on Shell. It is the most defensive stock, has low cash neutrality and the strongest balance sheet."

But investors may take a bit more convincing – the shares were close to the bottom of the blue-chip table, down 101.5p to 2,218p.

Shell was joined by temporary-energy supplier Aggreko. It admitted that it doesn't expect a pick-up in power project orders and the City was less than impressed – it lost more than 7 per cent, down 137p to 1,643p.

Aggreko, which has powered everything from disaster-stricken Japan after the earthquakes to the US Open Golf Championship, reported half-year results in line with forecasts and pre-tax profit reached £146m. Broker Oriel Securities said: "There will be future opportunities to take exposure to Aggreko, for now we see uncertainty." Oriel rated it a hold.

Across the wider market the bulls were still winning and the FTSE 100 rose another 60.92 points to 6,681.98.

The Chinese Purchasing Managers' Index (PMI) for July was better than expected so miners were back on top. Mexican precious metals miner Fresnillo advanced 55p to 1,084p.

Lloyds Banking Group soared 5.53p, or 8 per cent, to 74p after the part state-owned bank said it would soon return to issuing dividends and the Government will soon start the process to sell the taxpayers' 39 per cent stake.

The FTSE 250 closed at its highest-ever level yesterday, up 188.35 to 15,061.21 – the first time it has broken through the 15,000 mark. Jupiter Fund Management reported half-year results in line with expectations and a 40 per cent increase in its dividend. It was one of the best performers on the mid-tier index, up 35.4p to 360p.

Miner Kenmare Resources, which said it had restructured its debt and updated on expansion, was 3p up at 29.4p.

On the back of continued good news in the housing market and strong results from estate agent Countrywide, the property group Grainger built up a 13.5p gain to 187.5p.

Small-cap oil rig-maker Lamprell said it had satisfied the conditions to use its banking facility and jetted up 1.75p to 146.5p. Analysts at Investec raised their price target to 120p for Premier Foods, after strong results this week and it was up 3.75p to 91p.

The Aim-listed pottery-maker Portmeirion barely met market expectations for its half-year results, but Cantor Fitzgerald's analyst Freddie George said that although there was "likely to be some profit taking" he rated it a buy with a 700p price target to "reflect the strong performance of the personal and household sector over the last quarter". It produced a 20p gain to 670p.

Tiddler New World Oil & Gas identified a second drillable prospect at its Danica Resources project in Denmark and the business was up 0.075p to 0.825p.

The Aim-listed shell company Mentum, which boasts the former Dresdner Kleinwort Wasserstein banker Peter Moss as chairman, had to admit yesterday that it was "not yet considering any imminent corporate transactions". Punters have been getting excited in recent days, pushing the penny stock up 80 per cent on Wednesday, amid bulletin board chatter a deal in the energy or resources sector is imminent. The shares still rose another 0.175p to 0.6p.