Improved returns on capital and returning more cash to shareholders. That, in essence, is the strategy turn-around announced by British Petroleum (BP) on Tuesday, and the markets approved it. The oil major will focus on its best assets and hold capital spending flat next year. That comes as returns on capital hit a five-year low, according to research from McKinsey. As well, production is expected to ramp up as five big projects start producing next year. Furthermore, a tighter integration of Rosneft (BP took a one-fifth stake when it sold off TNK-BP) should provide some help on the production front, too. It had better: the company has a goal of 30bn dollars in operating cash-flow for next year, half again more than in 2011. In parallel, the six per cent dividend hike unveiled on Tuesday will also take its yield to around five per cent, near that of French peer Total. A leaner, high-yielding BP has investors feeling good for now; only production growth will ensure they stay that way, writes the Financial Times' Lex column.
Despite having managed to come out of the 2008 financial crisis unscathed Standard Chartered has begun to attract a considerable following from amongst the "bears." There are now those who wonder aloud whether it is not right to expect the lender to mature alongside those emerging markets which it serves. In other words, it must demonstrate the ability to transition from a growth-driven bank to one that prioritises returns for shareholders. As well, they also fear that large impairments may be coming as some economies cool down. True, the bank's well-known problems in Korea have dragged on even eight years after its purchase of a local Standard Chartered. Nevertheless, management is right to battle on, given its high-return/low-risk trade finance business there.
Yes, there are increased headwinds in countries such as India too, but emerging markets are still forecast to enjoy economic growth in the medium to long-term that will far outstrip that of developed countries. Despite under-performing the FTSE 100 since the summer, the shares
are not cheap, trading at 15 times prospective earnings. However, it is hard to argue with the prospects it offers over the long term, as one of the best established international banks in the world's fastest growing economies. Patient investors will do well, The Times' Tempus says.
Regus' quarterly trading statement out yesterday showed how ambition has its costs. The serviced offices group reported an impressive 26% jump in third-quarter revenues to £387 m, but at the same time cautioned that its full-year results would be hurt by its decision to up the ante on investments in new units. It expects to add between 420 and 440 new centres this year, up from previous guidance of 350. While this would lead to "additional opening costs and initial operating losses", the pay-off for shareholders would be a boost to future revenues, profits and cash-flow on the back of the attractive returns. Although investors initially reacted poorly analysts did endorse the company's plans. In fact, the shares regained their poise and closed up 1p at 205.75p. Its ambition means that it is well-placed to benefit from economic recovery. Hold, Tempus says.
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