Thursday, 29 October 2015

Europe earnings wrap today (Shell, BT Group, Lufthansa, Nokia)

Plenty to write about after a 'super Thursday' corporate results earnings flood.  First, Europe.

I wrote up Barclays earlier (link here).  The other two UK listed names to grab my attention were BT Group and Royal Dutch Shell

First Royal Dutch Shell.  Pacing through the announcement I am struck by similar emotions to my BP write-up of earlier in the week (link here): the current high dividend yield (7%) is - when combined with capex - not covered by cash flow although it is pretty close and at least the teens percentage level of gearing suggests an ability beyond management rhetoric alone to keep the dividend maintained. 

Shell have a slightly different corporate angle than BP and that is the proposed BG Group integration.  Now we will hear more from BG tomorrow (Friday) as they update the market with their latest trading insights but Shell clearly see the integration as an opportunity - beyond just normal capex/cost cutting initiatives - to become more cash generative at lower oil price levels as noted below.  I would suggest this may be more impressive than even anything BP said earlier in the week. 

Of course there are execution risks (hopefully abated that little bit further by the BG pronouncements tomorrow) but hard not to see value here for most types of investors over a reasonable time period - even if the shares are down about 100p since I made a similar pronouncement/observation last quarter (link here). 

I am not sure I have ever written up BT Group on Financial Orbit although certainly away from the site I have commented on the company.  My broad view is that the proposed purchase of the UK mobile phone entity EE is sensible (quad play and all that) move but inevitably is execution risk heavy (now that most of the regulatory risks appear to have been rescinded).  The deal makes numbers calculations tricky too.  Still a double digit percentage rise in the dividend (to a 3%+ yield) and double digit percentage free cash flow yield highlight some residual attractiveness even if headline growth metrics are currently modest. 

Some of that modest progression is centred on higher costs which are sourced from the pay TV push as shown below:

On an associated front interesting to see the political nudge given to the UK telecoms/media regulators by the company about broadband and pay TV pricing.  Guess which one BT would like a more competitive framework in?

Overall my view would be not to chase BT shares up here as I believe too much of the synergy target hopes are factored in.  Elsewhere I noted waiting for c. 400p.  Maybe the c. 420s as an area of recent resistance is time for another first look.

A couple of final euro zone thoughts (so many other numbers to potentially write-up in Europe today - maybe I will write another email with thoughts before the week is up).  First Lufthansa where I observed on Twitter:

shares +40% from Aug lows. Cash flow good & want build low cost Eurowings but pricing poor. IMO wait

Interestingly the shares turned around sharply during the day after that comment was posted and now trade around Euro13 and hence are starting to look a little more interesting.  Euro12 would be even better.  On the watch list. 

Finally Nokia.  Again on Twitter I noted:

: buyback, margin progression & deal synergies = why this share is going >Euro7 ultimately. Remain long

Nokia shares blasted up 10% today and still look very solid for a run at Euro7+ (5%+ away from here).  I think tactically (clearly) the best has gone but with the proper/formal culmination of the Alcatel deal in 2016 only the scope for a further second leg is only just appearing.  That is why this stock remains interesting - and could well be on my 2016 individual equity buy list published in late December (nb want to see the list for 2015?  Check it out here). 

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