Daily market update: European markets, Shell, Kingfisher

“There is nothing better than a solid day on Wall Street to lift investor sentiment across the pond,” says Russ Mould, Investment Director at AJ Bell.

“A 2.3% gain in the Nasdaq and 1.8% advance in the S&P 500 yesterday created the right kind of backdrop to put European markets on the front foot. All the major indices in Europe moved higher on Tuesday, including a 0.3% gain in the FTSE 100.

“The UK index was led by the energy sector as investors applauded Shell’s new strategy built around more share buybacks and greater cost savings.

“Property-related shares were also in demand, including Segro at the top of the FTSE risers’ list and many housebuilders looking strong. Segro announced a data centre joint venture, giving investors a different spin on the AI theme.”

Shell

“Shell’s investors are jumping with joy at its strategy update. The energy company has pledged to hand out a greater percentage of its growing stream of cash flow to shareholders. It will also find more ways to save money in the business and reduce capital spending.

“Shell is already streets ahead of BP in putting clean energy projects at the back of the queue and focusing on fossil fuels.

“For energy producers in today’s world, the name of the game is to have the money-making machine on full pelt. Shell has its toes dipped in the renewable energy pool but hasn’t jumped face first into all things green. It’s clear that oil and gas remain the primary profit engines.

“Shell’s shares have significantly outperformed BP over the past five years but both have lagged some of their big US peers including Chevron and Exxon Mobil. The UK energy companies would love to narrow the valuation gap and they now are playing catch up.

“Focusing more on oil and gas gives Shell and BP a greater chance of making more money today, as opposed to the energy transition via renewables where the profit story is one for another day. Shell’s decision to cut costs and increase shareholder returns further enhances its attraction to investors and could be its ticket to widening the valuation gap with BP.”

Kingfisher

“Kingfisher is stuck in reverse gear. The B&Q owner is one of the most shorted stocks on the UK market as hedge funds bet that its problems can’t be fixed in the current fragile retail environment. They have been right so far, with the shares slumping even further on its latest set of results.

“Interestingly, the amount of stock on loan to short sellers dropped ahead of the figures. On 12 March, 6.6% of the stock was shorted. A week later, that figure had dropped to 4.9%, indicating that short sellers were losing their nerve in case Kingfisher’s problems hadn’t got any worse and the shares bounced back.

“The market reaction to the figures was one of utter disappointment and short sellers who kept their trades live were vindicated. Every key figure apart from gross margins was in reverse on a full-year basis. Guidance for the new year includes a wide profit range, the bottom end being worse than that achieved in the past year. Cash flow is also expected to be worse year-on-year.

“It’s all very well starting the results by saying its market share grew in all regions for the first time in over six years and launching a new share buyback programme. Investors aren’t fooled — Kingfisher is broken and something has to change fast.

“If Wickes and DFS can show resilience in a tough market, there is no excuse for Kingfisher not to keep its head above water.”

These articles are for information purposes only and are not a personal recommendation or advice.