Must read: Shell, Vodafone, Bank of England, Alphabet

Shell FY – Thurs 5 Feb 

Richard Hunter, Head of Markets, interactive investor says, “Investing in Shell (LSE:SHEL) has always been a marathon rather than a sprint in a perfect example of equity investment.

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The third-quarter numbers were boosted by an increase in refining margin and upstream production, as well as an expected imminent spike in gas trading earnings. Impairments and ongoing losses in the Renewables business took off some of the shine, but for the most part the numbers were robust against a difficult backdrop.

Despite heightened geopolitical tensions, Shell is now undergoing more conservative capital expenditure, thus underpinning shareholder returns. In addition, its diversity of operations across oil, gas, chemicals, and retailing regularly allows one area of strength to counter another of weakness. Management’s previous estimate that the dividend could be sustained even with the oil price as low as $40 per barrel (£29) - currently around $67 - is noteworthy, while a focus on reducing costs continues. 

An increase in the share price of 4% over the last year may seem pedestrian by Shell’s standards, but it does not reflect the whole story. The gain was achieved despite a dip of around 9.5% in the oil price over that time, so it rates as outperformance.

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In addition, overall returns were boosted by a dividend yield of 3.9% as well as a multi-billion dollar share buyback programme (currently running at around $3.5 billion per quarter), underlining the group’s overall financial power.

Some investors are unwilling or unable to invest in oil stocks on ethical grounds. Even so, the company remains a core constituent of many traditional portfolios alongside the old adage of “never sell Shell” and remains the preferred play in the sector over BP.”

Vodafone Q3 - Thurs 5 Feb 

Richard Hunter says, “At the group’s half-year report in November, there were some signs that Vodafone Group (LSE:VOD) is beginning to ring the changes.

Up until now, progress had been slow and this fiercely competitive sector is unforgiving. The second-quarter performance showed a return to growth in its troubled German operation, while Africa continues to grow apace and the UK was buoyed by a quick start to the integration of Three UK. Nonetheless, while those signs are positive, a sustained trend will need to be shown before investors can justifiably buy in to the recovery.

In terms of strategy, the group had quite simply been fighting fires on too many fronts while dealing with an increasingly onerous debt burden, leading to the need for a significant transformation. What is now emerging is a smaller and less geographically diverse, but more focused operation. Asset sales in Italy and Spain, as well as a reduction of its stake in Vantage Towers were reflected by cash proceeds of €13.3 billion (£11.5 billion) over the previous year, which reduced net debt to €22.4 billion from a previous €33.2 billion, although this has spiked again to €25.9 billion and remains an ominous weight on the group. 

Overall, the direction of travel has provided some relief. A progressive dividend policy will build on the current yield of 3.7%, while the €4 billion share buyback programme is now 75% complete. The numbers led to a slight upgrade to Vodafone’s previous guidance, whereby earnings are now expected to be at the upper end of the €11.3 billion to €11.6 billion range previously estimated.

Of course, the telecoms sector is one based on reliability, but equally importantly on price, where there remains ferocious competition. Recent years have also required huge investment as the industry moves on, such as being part of the new 5G network, with the benefit of any payback not being felt for any number of years. 

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Unfortunately, years of underperformance weigh heavily on investors’ minds, and it will take some time for those painful memories to be erased. The shares have languished for some considerable time, having fallen by 52% over the last ten years and by 18% over the last five, despite a spike of 55% in the last 12 months.

While the strategy is clear, the transformation in train and the valuation undemanding, caution will remain the watchword for investors as the transformation unfolds.”

Bank of England - Thurs 5 Feb 

Victoria Scholar, Head of Investment, interactive investor says, “The Bank of England (BoE) is widely expected to keep interest rates unchanged next week at 3.75%. 

Recent hotter-than-expected UK economic data including CPI inflation which rose to 3.4% December, up from 3.2% in November and above the 2% target, has deterred the central bank from any immediate monetary loosening. However, focus on Thursday for investors will be on any potential clues into whether the Bank of England will cut by 25 basis points in March. The likelihood is that the BoE will carry out a rate cut in either March or April depending most importantly on the latest inflation and employment data. 

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Despite December's uptick, inflation is still expected to ease towards 2% this year. Plus there have been continued signs of slack in the labour market, particularly in terms of wage growth, paving the way for further cuts this year, potentially pushing the rate down to around 3%.

This could be positive for UK gilts, particularly at the short-end, as well as the UK housebuilder sector this year. Recent housing market data from Rightmove pointed to a bounceback in activity at the start of this year. However while lower rates will be a positive for mortgage holders, savers might suffer as returns on savings fall.” 

Alphabet - Wed 4 Feb 

Victoria Scholar says, “Alphabet Inc Class A (NASDAQ:GOOGL) prepares to deliver fourth-quarter and fiscal year 2025 results on Wednesday 4 February. 

The tech giant behind Google Search, Google Cloud, YouTube and Android delivered $100 billion in quarterly revenue for the first time in October, and shares have gained more than 100% over the past nine months, sparking valuation concerns. Therefore the bar is set high for shares to jump after earnings, even in the case of a top and bottom line beat. 

According to Refinitiv, Q4 revenue is expected to hit $111.38 billion versus $102.35 billion last quarter while adjusted earnings per share is forecast to fall to $2.63 versus $3.1 in Q3. 

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Google Cloud is facing stiff competition in the AI arms race against other dominant AI infrastructure platforms like Microsoft’s Azure.

Amid the AI hype, particular focus in Alphabet’s earnings will be on its capital expenditure, cloud numbers and any guidance around AI investment and demand. The company expects 2025 capex of between $92 billion and $93 billion as it spends heavily on its AI expansion plans. Its Google Cloud unit is forecast to generate revenue of $16.17 billion versus $15.15 billion last quarter. Elsewhere, YouTube ad revenues will also be a focus for investors, having reached $10.26 billion in Q3. 

Alphabet currently enjoys a consensus buy recommendation from the analyst community.