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Trader’s Corner; Deep Dig for Oil Giant: 01-11-19

Oil giant Shell’s share price plummeted four per cent after the release of its Q3 results, which revealed profits were down 15% compared to the same time last year. Weaker oil prices have had a big impact for Shell, plus as the world becomes more environmentally aware, oil producers are falling out of investors’ favour and its share price stands at 2243.65p at the time of writing. While the Q3 results showed profits were down to $4.8 bn during the third quarter, compared to $5.62 billion in the same period last year, they were ahead of analyst’s estimates of $3.9 bn for the quarter.

So, is Shell’s share price something to worry about or could it still dig itself out of a hole? Analysts have expressed some concerns – AJ Bell, for example, compared Shell unfavourably to competitor BP saying that the upstream oil and gas side of Shell was particularly disappointing and unlike BP, the refining part of the business has not come to the rescue. An investor’s favourite because of its dividend, another worry is that this has been held flat because of the oil provider’s planned $25 bn buyback, which now looks like it might not come to fruition by the end of 2020. And Shell is still at the mercy of the global climate as a whole – the regulatory pressure on the industry due to climate change is only likely to increase. Some, though, think Shell is starting to adapt, particularly by trying to focus on gas and sustainable energy – its long-term share value may depend on how successful this diversification turns out to be.

Toy manufacturer, Mattel, look to be winning the game long before Santa has started loading his sleigh this year. Mattel, famous for Barbie and Hot Wheels, delighted investors with its third quarter results, causing a share price surge of 20% earlier in the week, now standing at $10.56. The toy stalwart revealed earnings of $70.6 million for the third quarter compared with $6.3 million in the same period of the previous year. Big jumps in global sales of headline brands Barbie and Hot Wheels, 13% and 10% respectively, suggest that the company’s recently announced turnaround plan is working so far. Is it worth taking a gamble that the toy manufacturer has regained its sparkle? Analysts are optimistic, calling for a revenue of $1.5 bn, and Mattel has adjusted its EDIBTA to between $400 and $425 million. The real test though will come in the next quarter – to meet these expectations Mattel’s headlining brands will need to be at the top of the Christmas lists this year.

Lloyds Bank has had a tough third quarter, revealing pre tax profits had plunged by 97%, compared to the same period last year, causing shares to tumble by 2%. Unsurprisingly, the bank was hit by the August PPI deadline which cost an extra £1.8 bn during the quarter. Pre tax profits had fallen from £1.8 bn to £50 m and share prices were standing at 56.80p at the time of writing. So, where does that leave Lloyds, and how do they compare to the other big banks? PPI damage was no surprise and at least now all the claims have been paid out and that chapter is closed. The climate is still tough for banks though – political and Brexit uncertainty prevails, and weaker economic confidence and low interest rates are making it harder to make money. Lloyds has done a good job at paring down costs – its results revealed full year operating costs will be lower than expected – but some analysts have questioned how much more cost-cutting the bank could manage. Others have pointed out that Lloyds trades on just seven times expected earnings though, making it cheaper than its peers, so if it can weather the economic storm perhaps it could provide long-term value?

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