Top UK Stocks to Watch: Shell boosts dividend and launches buyback

Shell largely achieves its debt target, Lloyds reintroduces its progressive dividend and raises its guidance, Anglo American set to return an extra $2 billion to investors, AstraZeneca ups targets after Alexion merger, and sales at Pets at Home and Dr Martens continue to rise.

UK

Top News: Shell hits debt target to pave the way for shareholder returns

Royal Dutch Shell revealed it is extremely close to its net debt target this morning, prompting the oil and gas giant to reintroduce a progressive dividend policy and launch a new $2 billion share buyback.

The company surprised the market earlier this year as it said it was approaching its goal of cutting net debt down to $65 billion which, when achieved, would allow the company to start returning 20% to 30% of operating cashflow to shareholders.

Today, Shell revealed it ended June with net debt of $65.7 billion, down from $71.3 billion at the end of March and almost $78 billion a year ago. The latest cut made over the past three months was supported by a surge in cashflow thanks to oil prices climbing higher as the global economy reopens as well as $1.3 billion of asset sales.

Shell said it was ‘stepping up our shareholder distributions’ after largely hitting its target. It has rebased its quarterly dividend to $0.24, some 38% higher than what was paid in the first quarter, and said its progressive policy aims to grow payouts by 4% per year. This will be complimented by a $2 billion share buyback to be completed by the end of the year.

Shell shares were up 3.1% in early trade this morning at 1429.2p.

Shell said this means distributions in 2021 will be around the middle of its 20% to 30% cashflow range. Operating cashflow improved to $12.61 billion in the quarter from $8.29 billion in the first three months of the year.

The decision came as Shell reported adjusted earnings of $5.53 billion in the second quarter. That compared to just $600 million the year before when demand collapsed as the pandemic erupted and also a big improvement from the $3.23 billion delivered in the first quarter of 2021.

Earnings were also ahead of the $5.10 billion forecast by analysts.

Adjusted Ebitda – Shell’s preferred earnings measure – increased to $13.05 billion from $11.49 billion the year before.

Lloyds reintroduces progressive dividend and raises guidance

Lloyds Banking Group reintroduced a progressive dividend policy this morning after the last of the restrictions on payouts were lifted earlier this month and the improving economic outlook continues to lead to an improvement for the UK bank, prompting it to raise guidance for the rest of the year.

The bank said its new policy will start with an interim payout of 0.67 pence per share. It said it has also decided to pay dividends twice a year going forward rather than quarterly because it provides greater flexibility.

‘The board will continue to give due consideration at each year end to the return of any surplus capital through the use of special dividends or buybacks,’ Lloyds added.

The restart of a new dividend policy comes after the Bank of England earlier this month removed the last of restrictions that had limited the ability of UK banks to pay dividends, having introduced rules to ensure banks stayed financially strong enough during the pandemic.

The news came as Lloyds posted a 2% rise in net income during the first half of the year to £7.56 billion from £7.41 billion the year before. It turned to an underlying profit of £4.06 billion from a £281 million loss, while reported pretax profit of £3.90 billion swung from a £602 million loss.

EPS came in at 5.1 pence compared to a 0.3p loss the year before.

Profits were boosted by Lloyds releasing £837 million worth of reserves that had been set aside for potentially bad loans spawning from the pandemic, while led to a net benefit of £656 million. That decision has been made as the economic outlook improves and the potential for people to struggle to repay loans reduces.

‘During the first six months of 2021, the group has delivered a solid financial performance with continued business momentum, bolstered by an improved macroeconomic outlook for the UK. While we are seeing clear progress in the vaccine roll out and emergence from lockdown restrictions, the coronavirus pandemic continues to have a significant impact on the people, businesses and communities of the UK,’ said William Chalmers, interim CEO of Lloyds.

Lloyds said the improving situation has prompted it to raise expectations yet again for the full year after upping targets back in April. The bank said it is now aiming for a full-year net interest margin of 2.5%, a net asset quality ratio of below 10 basis points, and a return on tangible equity of 10%. Previously, it was aiming for a margin of 2.45%, a net quality asset ratio of below 25 basis points and a RoTE of between 8% to 10%.

Separately, Lloyds also announced it has agreed to buy Embark Group, an investment and retirement planning platform to help bolster the bank’s position in the wealth market. Lloyds will acquire £35 billion worth of assets under administration and 410,000 consumer clients under the acquisition.

Lloyds shares were trading 0.3% higher in early trade this morning at 47.11p.

Anglo American to return extra $2 billion to shareholders

Multi-commodity miner Anglo American said it will return an additional $2 billion to shareholders through the combination of a special dividend and a share buyback as the surge in commodity prices continues to deliver cash into the business.

Anglo American shares jumped 3.6% in early trade this morning at 3251.0p.

The return will split equally between the two, with $1 billion being returned through a special dividend worth $0.80 per share and the remaining $1 billion through an on-market buyback. The buyback will be completed by mid-February 2022 at the latest.

‘We entered this period of strong demand and prices for many of our products with a strong balance sheet and we are therefore in a position to  deliver both the investment in our sequence of margin-enhancing growth projects and also return excess cash to our shareholders. Today's additional return of $2 billion demonstrates our applied capital discipline and the board's confidence in the business,’ said chief executive Mark Cufitani.

Anglo American’s finance director Stephen Pearce said this builds on the company’s commitment to return 40% of underlying earnings and that all options for returning excess cash to investors are being assessed. Combined with its ordinary base dividend, Anglo American is set to return around $4.1 billion to shareholders this year.

AstraZeneca ups guidance following Alexion mega-merger

AstraZeneca reported strong growth in the first half of 2021 thanks to demand for its coronavirus vaccine and other key drugs and said it is expecting faster growth in earnings than previously expected after completing the landmark merger with Alexion Pharmaceuticals this month.

AstraZeneca completed its $39 billion combination with Alexion on July 21, but no contribution from Alexion has been booked in the first-half results. Alexion will be added to the books from the third quarter onwards.

Revenue rose 23% year-on-year in the first half to $15.54 billion, driven by demand for new medicines including Tagrisso, Calquence and Farxiga. That sum included $1.16 billion worth of sales of its coronavirus vaccine.

‘AstraZeneca has delivered another period of strong growth thanks to robust performances across all regions and disease areas, particularly Oncology, New CVRM and Fasenra in Respiratory. As a result, we have delivered further earnings progression, supported ongoing launches, and continued our investment in R&D,’ said CEO Pascal Soirot.

Reported EPS jumped 37% year-on-year to $1.61 while core EPS – its preferred measure – increased 26% to $2.53.

With it about to fuse its own finances with that of Alexion, AstraZeneca has updated its guidance to take the merger into account. It said it is expecting total revenue in 2021 to grow by a ‘low-twenties percentage’ accompanied by faster growth in core EPS to $5.05 to $5.40. Importantly, this guidance excludes sales from its coronavirus vaccine.

It was previously targeting a low-teens percentage growth in revenue and core EPS of $4.75 to $5.00.

The interim dividend was left unchanged from the previous year at $0.90 per share.

AstraZeneca shares were down 0.6% at 8220.5p in early trade this morning.

Pets at Home growth reaches fastest pace since pandemic began

Pets at Home raised its full year expectations this morning as it continues to deliver strong double-digit growth in sales and shrug off any threats posed by the pandemic.

The pet retailer has been one of the biggest winners since the start of the pandemic. Today, it said revenue jumped 25.7% in the first half of the year to £377.8 million.

Like-for-like sales in the first quarter of 2021 were 30.2% higher than the year before and some 29.4% higher than pre-pandemic levels two years ago. Year-on-year like-for-like growth in its retail stores came in at 29.1% while its vets business reported 44.7% growth. Like-for-likes remained well above 25% for both businesses compared to pre-pandemic levels.  

The strong performance prompted Pets at Home to raise its expectations for the year. It is now targeting underlying pretax profits of £130 million, at the top end of current market expectations and some 49% higher than what was delivered last year. Its previous target was for profits between £120 to £130 million.

Pets at Home shares were down 1.4% in early trade this morning at 494.8p, having climbed to a fresh all-time during yesterday’s session.

Dr Martens sales growth flattered by weak comparatives

Dr Martens said trading was slightly ahead of expectations in the first quarter of its financial year as sales soared 52%, having been partly flattered by weak comparatives from when the pandemic hit last year.

The company, known for making iconic footwear, said revenue rose 52% to £147.3 million in the three months to the end of June. Although the previous year’s figures were suppressed by the drop-off in demand as the pandemic hit, quarterly revenue was still up 31% from pre-pandemic levels two years earlier.

Importantly, the first quarter tends to be the quietest for Dr Martens and this also means that it will start to come up against stronger comparatives in the coming quarters, which should lead to slower levels of growth.

Dr Martens shares were down 2.5% in early trade this morning as a result at 443.2p.

Dr Martens said it delivered ‘good growth’ across all geographical regions, with its retail, wholesale and ecommerce units all improving.

‘Trading in Q1 was slightly ahead of our expectations, with a strong end to the period. Q1 is by far the smallest quarter however, and in Q2 we face a much stronger comparative. We anticipate that the pattern of trading through the year will be non-linear and, like many others across the industry, we are experiencing inbound shipping delays and other operational challenges due to Covid-19. Despite these, we remain confident in the delivery of our guidance for FY22 and over the medium-term,’ said Dr Martens.

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