17th Jul 2024. 9.07am

Regency View:

Update

Regency View:

Update

BP drop on $2bn impairment and refining margin woes

BP’s (BP.) share price fell last week after the company announced it expects to post an impairment of up to $2 billion in the second quarter of 2024 and warned of lower refining margins impacting its results.

This substantial impairment charge includes post-tax adverse adjusting items related to asset impairments and onerous contract provisions, amounting to between $1.0 and $2.0 billion. These charges encompass costs linked to the ongoing review of BP’s Gelsenkirchen refinery in Germany, which was initially announced in March.

Investors were also concerned about the expected decline in refining margins. BP’s trading statement highlighted that significantly lower realized refining margins would adversely impact results by approximately $0.5 to $0.7 billion.

The decline in refining margins is attributed to weaker middle distillate margins, narrower North American heavy crude oil differentials, and an increased level of turnaround activity. These negative factors are only partially offset by the absence of the first-quarter Whiting refinery outage, which had previously resulted in a $0.5 billion impact.

Whilst this is a disappointing start to our BP recommendation, the shares have found support at the January lows and our bigger picture outlook on the stock remains unchanged.

BP. Daily Candle Chart

BP. Daily Candle Chart

Bytes expects to deliver double-digit growth

Bytes Technology (BYIT) said last week that it has continued to “trade well” against the backdrop of a “competitive market environment,” highlighting its resilience and strong market position.

The computer software reseller reported growth across key financial performance metrics for the first four months of the financial year, demonstrating its ability to thrive despite industry challenges.

Specifically, Bytes achieved double-digit percentage growth in both Gross Invoiced Income and Adjusted Operating Profit. Additionally, the company experienced high single-digit growth in Gross Profit, attributed to an increased focus on high volume, lower margin software sales. This strategic shift allowed Bytes to capitalise on market opportunities and maintain steady profit growth.

Bytes CEO, Sam Mudd emphasised that the overall performance of the business was driven by strong and stable demand from both corporate and public sectors.

The update received a mixed response from investors with the shares initially gapping higher on the day of the statement, only to close lower. We believe Bytes are well positioned to deliver on their growth targets and expect support at 460p to hold firm.

BYIT Daily Candle Chart

BYIT Daily Candle Chart

Canada greenlights Glencore’s $6.93bn Teck coal unit buyout

Canada has approved Glencore’s (GLEN) $6.93 billion acquisition of Teck Resources’ steelmaking coal unit under strict conditions designed to protect jobs.

The approval mandates that Glencore maintain Elk Valley Resources’ Canadian headquarters operational for at least 10 years. Additionally, a majority of directors at EVR must be Canadians, and significant employment levels at EVR must be upheld for a minimum of five years, as outlined by the Ministry of Industry.

Industry Minister Francois-Philippe Champagne emphasised the approval under stringent conditions for a more limited acquisition focused on Teck Resources’ metallurgical coal business. The deal is anticipated to close by July 11, pending final procedures and approvals.

Glencore’s share price reacted positively to the news – taking the shares into resistance at 478p. Glencore will release its 2024 Half-Year Production Report on Tuesday, 30 July 2024.

GLEN Daily Candle Chart

GLEN Daily Candle Chart

Indivior drop after profit warning and strategic overhaul

Indivior’s (INDV) share price dropped last week following the company’s announcement of a profit warning and strategic changes.

The pharmaceutical firm cut its 2024 profit forecast due to unexpected market dynamics impacting its top-selling opioid addiction treatment, Sublocade. This revision was driven by intensified competition from new market entrants and the expiration of pandemic-related Medicaid coverage, which led to significant disruptions in patient treatment and a subsequent decline in revenue.

Indivior also revealed plans to discontinue its schizophrenia drug Perseris, citing adverse market conditions and increased payer management that rendered the product financially unviable. This decision will result in approximately 130 job cuts and an estimated $65 million in related charges.

Despite the setbacks, Indivior remains confident in the strong demand for Sublocade. The company expects Sublocade to achieve a net revenue growth of 25% at the midpoint of its new guidance range for FY 2024. Indivior also reiterated its medium-term outlook, maintaining expectations for double-digit net revenue growth and operating margin expansion.

We have placed our position in Indivior under review and will update FTSE Investors accordingly.

INDV Daily Candle Chart

INDV Daily Candle Chart

Smith & Nephew surge after activist investor Cevian takes 5% stake

Smith & Nephew’s (SN.) share price jumped higher earlier this month following the disclosure that activist investor Cevian Capital had acquired a 5% stake in the company.

Cevian’s involvement is seen as a vote of confidence in Smith & Nephew, which has faced supply chain issues and high executive turnover. Despite these difficulties, Cevian believes that Smith & Nephew owns fundamentally attractive businesses operating in structurally growing markets. The activist investor sees an opportunity to create substantial long-term value by improving the company’s operational performance.

Cevian’s strategy typically involves investing in companies with complicated organizational structures and working to simplify and optimize them for better performance. The activist investor’s involvement has raised hopes that Smith & Nephew can capitalise on its strong market positions in the sports management, advanced wound management, and hip and knee implant sectors.

SN. Daily Candle Chart

SN. Daily Candle Chart

Disclaimer:

All content is provided for general information only and should not be construed as any form of advice or personal recommendation. The provision of this content is not regulated by the Financial Conduct Authority.