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Home / Blog / blog / Trader’s Corner || Scots Favourite Finds its Fizz. Is Oil Well for Shell? || 31-01-20

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Trader’s Corner || Scots Favourite Finds its Fizz. Is Oil Well for Shell? || 31-01-20

Oil giant, Royal Dutch Shell, will have to dig deep for recovery as its pre-Christmas profit warning has come to pass causing its share price to fall by a further four per cent. `

Its fourth quarter results have revealed that underlying profits were 48 per cent lower than last year at $2.9 billion leaving free cash flow 67.7 per cent lower than the same period last year. Lower oil prices have undoubtedly had a big impact, along with the larger economic environment and weaker margins in the refining business.

For Shell investors though, a big draw has always been the dividends so could the latest slump be a good entry point or is the stock set to sink further?

Most analysts agree that Shell has been a victim of the wider economic climate but that it still needs to explore diversification options for the long-term. With trade tensions between the US and China continuing and further potential pressure from the coronavirus, along with a need to explore the current demand for renewable energy, which will undoubtedly require significant investment, Shell definitely has some hurdles to face. However, the stock does still have a 6.7 per cent yield, it hasn’t cut its cash returns since the end of the Second World War and CEO Ben van Beurden says it is still committed to completing its $25 bn share buyback programme.

Irn Bru manufacturer, A J Barr, has regained some of its fizz with its latest results, causing its share price to rise by 12 per cent to 610p at the time of writing. The Scottish soft drinks maker announced it expects its full-year profits to be better than expected at just over £37 million. While that’s still a fall compared to last year, it’s only an 18 per cent drop as opposed to the 20 per cent slump that was predicted after a profit warning last July.

So, is this news enough to allay investors fears from last year that share prices were going pop? While sales are set to fall to around £255 million, compared to £279 million the previous year, this is largely due to a price hike and has also been attributed to a cooler spring and summer. Analysts think that maintaining prices rather than pushing volume is a smart move in the long term, with Russ Mould from A J Bell saying that the company benefits from “a strong balance sheet, robust cash generation, enduring brands, settled management and a best in-class manufacturing base.”

Brewin Dolphin were similarly optimistic suggesting that last year was ‘a temporary blip’ and pointing out that the company is contending with a challenging market. Whether or not A J Barr can continue to perform remains to be seen, but this trading update should offer some reassurance to investors who were worried that the drinks firm was going flat.

Anti-virus software firm Avast has seen its shares plummet by ten per cent after being hit with a data misselling scandal.

An investigation from tech publications Motherboard and PC Mag found that one of Avast’s subsidiaries, Jumpshot, has been selling users data to huge companies without their knowledge, and that due to sensitive browsing histories some users could be identified. Avast have refuted claims that identification is possible and has announced it will wind down Jumpshot but the scandal was enough to hack a hefty slice from its share price, which has now recovered slightly to stand at 395p at the time of writing.

Until this week, Avast had been one of the ’s strongest performers – just last week analyst Jefferies had raised its target price from 453p to 627p – so what does this latest share price fall mean for the stock?

Avast’s software is said to be installed on around 35 per cent of Windows PCs outside of China but some analysts fear that Microsoft’s own advancing cyber security developments could pose a threat to the firm anyway, leading Peel Hunt to issue a ‘sell’ rating and drop its target price to 405p. The general consensus however seems to be that the stock still has much to offer with a forward price to earnings ratio of 20 and no sign of demand for third party cybersecurity solutions slowing any time soon.

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