Market stalwarts, with their well-established reputations for reliability and profitability, are not immune to losing their way.
Any company, from a British blue-chip to a member of the Magnificent Seven, is capable of going astray — at least from the perspective of shareholders — and struggling with its sense of purpose.
Three years ago, Meta boss Mark Zuckerberg shifted the focus of the company he had co-founded to creating a fully immersive virtual reality world.
He rebranded the company — then still known as Facebook — as Meta in recognition of its new metaverse-based future. Shareholders were dubious. Many tens of billions of dollars later, Zuckerberg’s metaverse has utterly failed to gain traction at the desired scale.
Consumer goods giant Unilever received a public dressing down from fund manager Terry Smith for being obsessed with sustainability and prioritising virtue signalling over the business side of things.
Oil major BP shocked shareholders four years ago when it announced a radical change of direction for the company, away from fossil fuels.
It wasn’t so much the setting of renewables targets that alarmed investors as the scale and timespan of the change and the apparent abandonment of its oil company identity — in a world still heavily dependent on oil and gas.
But weak returns and poor share price performance compared with peers has forced a strategy rethink, something that has gained urgency with the arrival of activist Elliott Management on the shareholder list.
BP is now scaling down its renewables objectives and retracing its steps back to oil and gas to achieve growth targets.
HOLD: BP (BP.)
Impairments and lower refining margins and prices hit profits ahead of strategy revelation, writes Alex Hamer.
All will be revealed . . . but not yet, BP bosses said at the release of the oil and gas group’s full-year results this week.
The company had planned to hold its capital markets update on the same day as the results, but chief executive Murray Auchincloss had to delay this until February 26 due to a medical procedure.
This has led to investors looking at a set of numbers that Auchincloss has called a “foundation” for the new strategy, which is likely to be similar to those in place at more highly rated competitors Shell and Exxon-Mobil, with more focus on continued oil and gas production.
Pressure for change increased last week after activist investor Elliott Management took a stake in the company, with analysts forecasting a push to further cut costs, move away from renewables investment and increase investor payouts. The shares jumped 7 per cent on Monday in response to the Elliott investment.
The company’s underlying replacement cost profit for last year slid a third to $8.9bn (£7.2bn), because of industry-level factors like lower refining margins, prices and weaker trading profits.
Without the adjustments, the company’s profit was $381mn for the year, hit by more than $5bn in impairments, which were related to the Gelsenkirchen refinery ($2bn) in Germany, which is now up for sale, and $1bn for the sale of a business in Turkey.
For the fourth quarter, the company beat analyst forecasts, with adjusted operating profit at $4bn, or 6 per cent ahead of expectations.
Auchincloss said last year BP had “laid the foundations for growth”.
“Building on the actions taken in the past 12 months, we now plan to fundamentally reset our strategy and drive further improvements in performance, all in service of growing cash flow and returns,” he said.
Operationally, divestments and project timing mean 2025 will see production come down, alongside lower volumes in the petrol station and midstream division, while refining margins remain low.
BP had said it would hit the $25bn in divestments goal between 2020 and the end of 2025, with $3bn in assets left to sell.
Despite the pressure from Elliott, shareholder returns are unlikely to climb in the short term.
“We continue to expect BP to reduce its buyback programme,” said RBC analyst Biraj Borkhataria.
The company reported Q4 underlying cash flow from operations of $6.1bn, capital spending of $3.7bn and a $1.3bn dividend bill.
“This leaves the $1.75bn [quarterly] buyback uncovered by organic cash generation,” Borkhataria added.
BUY: Barclays (BARC)
Barclays kicked off earnings season for UK banks with strong profit growth and a £1bn share buyback, writes Jemma Slingo.
Total income in 2024 rose by 6 per cent to £26.8bn and pre-tax profit jumped by almost a quarter to £8.1bn.
Interest was responsible for some of this progress. Net interest income – the difference between what Barclays earns on loans and pays out on deposits — edged up by 2 per cent to £12.9bn, helped by structural hedge momentum. The acquisition of Tesco Bank in November also provided an earnings boost.
Interest income is just one piece of the puzzle, however. Compared with its UK peers, Barclays has an unusually large investment banking business.
This division put in a strong performance in 2024, increasing revenue by 7 per cent to £11.8bn. Growth accelerated in the final quarter due to higher banking fees and underwriting income. A similar trend has been noted by US investment banks, which are celebrating the return of dealmaking under President Trump.
Barclays’ push to cut costs also seems to be paying off. Its cost/income ratio was below target at 62 per cent in 2024, down from 67 per cent in 2023.
To keep up its capital distributions, the bank has announced a £1bn buyback and a full-year dividend of 5.5p.
This took total distributions for the year to £3bn, and counted towards its aim of returning £10bn of capital to shareholders between 2024 and 2026. This target was announced last February as part of a turnaround strategy.
All in all, the results were largely as expected and reflected a year of solid growth.
However, the market did not react well to a £90mn provision to cover potential fallout from last year’s motor finance ruling. Barclays shares fell by 5 per cent on Thursday morning, before rallying later.
Investors were also disappointed by a lack of profit upgrades. Analysts at Peel Hunt suggested that, although 2024 ended on a high, the “earnings upgrade cycle might now pause”.
Barclays shares have more than doubled in value in the past year, so now may be a good opportunity to take some profits.
However, we remain confident about Barclays’ longer-term outlook — particularly as the investment banking industry is showing signs of life and the group’s structural hedging programme means interest income is well protected.
HOLD: PZ Cussons’ (PZC)
Adjusting items fell sharply at the hygiene, baby and beauty products company, writes Christopher Akers.
PZ Cussons’ shares gained 7 per cent as the Carex and Imperial Leather owner returned to statutory profit in the first half despite a double-digit drop in revenue.
The consumer staples business benefited from a year-on-year reduction in cost of sales of almost £100mn, after the chunky foreign exchange losses posted in its last results on the devaluation of the Nigerian naira.
With expenses further down the income statement also falling, there were signs that management is getting on top of costs, as total adjusting items dropped sharply from £120.3mn to £13.4mn.
While reported revenue fell 10 per cent to £249mn on the back of a 55 per cent depreciation of the naira against sterling, like-for-like revenue growth was 7.1 per cent. That was driven by price inflation in Africa, but the UK market enjoyed its strongest post-pandemic performance and Indonesia delivered its third successive quarter of growth.
The company said it was “on track” to hit annual profit expectations, despite the naira’s volatility in recent years. It raised adjusted operating profit guidance by £5mn to £52mn-£58mn, but this was due to the treatment of estimated FX losses on inter-company loans as an adjusting item for accounting purposes.
Investec analyst Matthew Webb boosted his 2025 earnings per share forecast by 11 per cent, but only by 1 per cent for 2026 and 2027.
PZ Cussons trades on 12 times forward consensus earnings. Investors will need to wait for further news on the future of the company’s Africa operations (disposals are expected) and the planned sale of the St Tropez self-tanning business, but this was an encouraging update given the challenging backdrop.
