Sunday, 30 January 2011

Big week ahead for BP, plus updates on BG and Aviva

BP @ 486.8p report final results on Tuesday this week with the expectation that profits will jump due to the increasing oil price. The company may even reinstate its dividend (albeit at a lower level than previously) which will be welcome news to investors particularly within the Pension fund community where the company has traditionally been a big contributor with its formerly chunky dividend yield.
Otherwise analysts and watchers of the company will be looking for an update on the costs of the Gulf of Mexico disaster and the company's fund raising divestment programme. Finally, the current spat with TNK-BP partners over BP's new found friendship with Rosneft has resulted in legal actions from the partners which company watchers will want updating on. 

On a further sour note despite the much heralded deal with Rosneft and what it says about Anglo-Russian relations, the Russian state backed company has signed a further deal with BP's rival ExxonMobil to undertake a joint venture in the Black Sea. It will be interesting to see how the US authorities respond to that given the nature of their objections to BP's deal!

Royal Dutch Shell reports 2 days later.

BG Group @ 1334p. Elsewhere, after a raft of good news in recent weeks there are rumours doing the rounds that BG may soon become the recipient of a take-over offer. The company's share price has continued to trade with a "take-over" premium for many years with Royal Dutch Shell deemed the most likely in an attempt to shore up its reserves following its misrepresentation and overstatement of reserves in recent years. 
The company has kept itself in the news recently with its successes in its Brazilian operations and it may be that analysts are just pumping up the takeover talk to try to convince a likely buyer that the time is right. Not holding my breath though and not sure if I want to lose my investment for a short term profit given the success of the company and its management.

Aviva @ 450.2p I haven't spoken much about Aviva lately but the company is now showing a decent profit of 20% against my investment following the 3rd of 3 promised updates to shareholders. This 3rd presentation set out to demonstrate the company's financial strength in a presentation to analysts and investors to underline its recovering progress and balance sheet. 
Previous presentations in July, covered the company's cash and dividend policy and, in November, its strategy.
The highlights of the 3rd presentation were:
- a vastly improved pension fund deficit which, at the end of November, stood at £0.4bn from £1.7bn the year before.
- Net Asset Value of 617p per share against the current share price of 450.2p.
- plans to reduce debt by a further £700m

At 450p the company is still on a forecast P/E of 7.2 and a consensus dividend yield of 5.9%, or 25.74p (close to 2.5 times covered by earnings) so with the prospect that the company may continue to recover its share price my one regret is that I should have bought more. 
Perhaps the opportunity is still there but my vision is being clouded by previous purchases at a lower price than today? The fact that I can now point to 617p as a Net Asset Value suggests that there is still 30% upside on any further investment I make at 450p.

An article in today's Financial Mail supplement of the Sunday Mail also has Aviva mulling over a £7bn bid for rival RSA apparently this could be a means to bring Andy Haste (RSA's Chief Exec) into the Aviva group with the possible scenario of him running the whole operation. Seems a very expensive head-hunting exercise to me as well as seeming contradictory to the company's intent to reduce debt by £700m. 

I don't think that I will be holding my breath waiting on either of the deals mentioned and wonder how to read the markets with so much "speculative" deal making going on? But, at least I continue to be confident of what would be 2 of my tips for the year (BP and Aviva), and the progress they are making.

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