FTSE 100 shares round-up: Rolls-Royce, BAE, BP, Scottish Mortgage

Credit: Rolls-Royce via Flickr.

Rolls-Royce Holdings (LSE:RR.) today neared a record high and Scottish Mortgage Ord (LSE:SMT) Investment Trust continued its Space Exploration Technologies Corp Class A (NASDAQ:SPCX) progress as the FTSE 100 index gained ground on hopes of Middle East peace.

The blue-chip benchmark reached lunchtime at just below 10,500, representing a 3.5% rise since Wednesday, although that is some way short of the intraday high of 10,934 set on 27 February.

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Europe’s ​STOXX 600 closed at a record yesterday and is up again today as relief over the preliminary US-Iran agreement to reopen the Strait of Hormuz continued to boost sentiment.

The S&P 500 index rose 1.7% to finish last night within 1% of its peak, and is today seen consolidating its recent AI-fuelled gains as investors price out the chances of aggressive US interest rate hikes.

The optimism follows the latest retreat for Brent crude, which today fell another 2.5% to $81.06 a barrel after Monday’s reverse of 4.8% resulted in a three-month low of $83.17 a barrel

That’s despite continued uncertainty over how long it will take to restart trade flows through Hormuz, as well as the lack of detail over the peace deal due to be signed on Friday.

The oil price weakness means BP (LSE:BP.) and Shell (LSE:SHEL) shares have fallen by more than 5% since Thursday, while the wider European energy sector is down by about 9% since the highs of April.

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A multiple of 8.5 times UBS’s forecast earnings represents a 7% discount to the sector’s 10-year average as stocks now factor in an oil price of $70 a barrel.

The Swiss bank said today: “In the near-term, further downside remains possible given the shares were pricing in about $65 a barrel before the conflict, although the difference now is increased earnings support from elevated refining margins as well as more support to terminal values from the energy independence theme.”

UBS adds that BP shares look “increasingly attractive” given its discounted valuation and self-help potential.

BAE Systems (LSE:BA.) and Babcock International Group (LSE:BAB) have also been impacted by recent developments, having fallen by about 18% since the first US-Iran ceasefire was announced on 8 April.

BAE shares are 11% below they stood prior to an update on 7 May, when it reiterated full-year guidance and said it was “well positioned for both current and future opportunities in defence.”

Rolls-Royce shares were at 1,098p in late April but have returned to form to trade back near the record high of 1,420p set on the morning of forecast-beating annual results on 26 February.

They are up by 14% in the space of a week after the outlook for engine flying hours was boosted by the peace deal and the company disclosed another boost to its nuclear ambitions.

Yesterday’s contract with Sweden’s Vattenfall means Rolls-Royce has been successful in every competitively tendered small modular reactor (SMR) selection process in Europe.

The deal for Sweden’s first new nuclear plant for over 40 years follows the signing of a contract with Great British Energy – Nuclear and one with CEZ Group in the Czech Republic.

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Rolls chief executive Tufan Erginbilgic said selection by Vattenfall was further evidence that the strategic choices made in the transformation of Rolls-Royce are delivering.

He added: “We are unlocking significant future growth opportunities through our unique nuclear capabilities and are well positioned to benefit from the ongoing nuclear renaissance.”

The shares today peaked at 1,401.8p - leaving them on course for another record close - but Bank of America believes they deserve to be trading at 1,740p.

In a preview of interim results on 30 July, it said last week that the company’s relatively young fleet and a structurally strengthening widebody cycle supported the outlook for engine flying hour growth.

Counterparts at Berenberg recently moved to a Buy recommendation after naming Rolls as its top pick in commercial aerospace.

Rolls was joined near the top of the FTSE 100 index by Scottish Mortgage, which is up by 25% since the end of March. The shares today rose 22p to 1,472p, which is short of the record 1,563p set on 2 June and the 1,493.98p net asset value (NAV) disclosed on 4 June.

This valuation was based on the $135 initial public offering price of SpaceX, which on 3 June accounted for 21% of the Scottish Mortgage portfolio compared with 17.9% on 30 April.

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The fair value of Scottish Mortgage’s SpaceX stake had been £3 billion at the end of March, up from £151 million following the original 2018 investment.

SpaceX shares were today set to break the $200 threshold after surging by 20% to reach $192.5 and a market valuation of $2.5 trillion at last night’s Wall Street closing bell. The strong start means Elon Musk’s company is well placed to overtake the $2.6 trillion-valued Amazon.com Inc (NASDAQ:AMZN).