By Carla Mozee, MarketWatch
Tobacco shares rise
LONDON (MarketWatch) -- U.K. stocks fell Thursday, with
oil-and-gas shares leading decliners after oil prices were dragged
to fresh multiyear lows, but shares of EasyJet PLC outperformed the
benchmark FTSE 100.
The FTSE 100 shed 0.2% at 6,810.60, with the oil-and-gas group
losing more than 3%. U.S. oil futures (CLH5) fell to their worst
level since March 2009, with a sharp drop in prices triggered
Wednesday after a larger-than-expected increase in U.S. crude
supplies. Brent crude-oil prices were slightly higher Thursday
after losing 2.3% in the previous session.
Oil major Royal Dutch Shell PLC (RDSB) was the second-worst
performer on the FTSE 100 as its shares dropped 4.9%. Shell was
able to post a rise in fourth-quarter profit on a current
cost-of-supplies basis -- a metric similar to the net profit
reported by U.S. oil companies -- in the face of falling oil
prices. That profit rose to $4.2 billion, compared with $2.2
billion in the same period last year. But Shell also plans to
reduce capital expenditure by about $15 billion over the next three
years.
Also ending lower, shares of oil producers BP PLC (BP) and BG
Group PLC each lost 1.9%, and Tullow Oil PLC pulled back 1.7%.
Stock in Carnival PLC fell 2.2% after rival cruise operator
Royal Caribbean Cruises Ltd. (RCL) missed fourth-quarter profit
expectations and said strengthening in the U.S. dollar contributed
to a reduction in per-share earnings by seven cents a share since
October.
In this U.S. earnings-reporting season, "the current boardroom
mantra is that the strength of dollar is hurting profits and as a
result of that, [financial] results have been good but the outlook
has been a lot more cautious," said Richard Hunter, head of U.K.
equities at Hargreaves Lansdown.
The U.S. reporting season has been seen as a key driver for
markets overall, Hunter said. "At the end of 2014, we knew all
about the risks and the downsides to the market but we weren't sure
where the positive catalysts would come from." On the flip side,
cautious outlooks could set companies up later to beat
expectations, he said.
Soaring to the top of the index was EasyJet PLC . Shares jumped
6.2%, the best session in nearly four months, after Barclays
upgraded the air carrier's rating to overweight from equalweight
and raised its price target by 16% to 21.50 pounds ($32.53), citing
strong U.K. demand and an attractive EasyJet valuation.
Diageo PLC shares swung higher by 3.1%. They had been lower
earlier after the world's largest liquor company said first-half
profit fell 18%, with sales in North America dropping. Diageo's
brands include Smirnoff, Guinness and Johnnie Walker.
Also, shares of Imperial Tobacco Group and British American
Tobacco PLC were up 2% and 0.4%, respectively. Panmure Gordon began
coverage of the U.K. tobacco sector with an overweight stance.
While it's trading close to its historic valuation high, said
Panmure, it's also trading at a significant valuation discount to
other European consumer-goods sectors whose products, like tobacco,
sell quickly.
Regulatory concerns may increase before the U.K. general
election in May, but the completion of the Reynolds American Inc.'s
(RAI) purchase of Lorillard Inc. (LO) "would be perceived as a
positive for both British American Tobacco and Imperial Tobacco,"
said Panmure analyst Jonathan Leinster in an note.
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