Airlines Deals

Four blue chip firms - Rolls Royce, Smith & Nephew, Shell and Kingfisher - posted results comfortably outstripping analysts expectations, helping spread positive sentiment across the market this morning. By lunchtime the FTSE 100 index had ticked up 37.3 points to 5,914.4.
Shares in Royal Dutch Shell B rose 58p to £19.98 after pleasantly surprising the market with a 26% jump in second quarter profits. The group’s performance looked particularly strong set against recent disappointing numbers from sector peers BP and BG.

Investors also took cheer from Shell’s insistence that it would meet production targets for next year despite persistent attacks on its facilities in Nigeria by separatist rebels. The largest oil producer in Nigeria, Shell warned it would pump only 3.4m barrels of oil equivalent this year.
There were gains across the wider oil and gas sector after it emerged that US government figures showed stockpiles of petrol were depleting at a rate much faster than anticipated. This comes on top of heightened supply disruption concerns due to diplomatic tensions with Iran over its nuclear programme as well as the ongoing conflict between Israel and Hezbollah in Lebanon. BP rose 14.5p to 649p while BG gained 12.5p to 712.5p.

Jet engine maker Rolls Royce, up 24.25p to 445.75p, impressed investors with strong aftermarket sales growth - a trend the company is confident will continue. Shares in the group, which has made much progress on cost cutting, led the FTSE leaderboard for much of the morning, until it was overtaken by Smith & Nephew.

At Kingfisher, up 8p to 250p, there were finally some signs of hope as the rate at which comparable sales were declining slowed to 2.4%. This 11-week performance, which came with a flat gross margin, was much better than analysts had expected and a big improvement on the 8.8% decline in like-for-like sales in the first quarter.

Analysts at Panmure Gordon, reiterating their “sell” recommendation, said: “While there may be relief that the situation appears to be stabilising … we believe … the returns in the core business will continue under pressure and that the business is becoming more capital intensive.”

Even the group’s joint house broker Credit Suisse said: “Thus far, we feel there are no real signs that UK demand is firming up and underlying margin pressure remains. This leaves the valuation continuing to look exposed in our view but we can see that the improved UK sales performance here may encourage investors to look through current conditions.” The brokerage retained its “neutral” rating on Kingfisher.

There were encouraging second quarter figures also from Smith & Nephew, up 27.75p to 459.75p. Management said it was confident of product launches in the second half fuelling sales growth.

AstraZeneca also posted strong second quarter figures, but shares lost ground, down 120p to £32.00, on what some analysts suggested might be concern at the group’s full-year guidance.