Shell shares rose on Thursday morning after the oil giant’s profits declined quarter-on-quarter as a result of lower oil prices. Shell’s profit wa well ahead of last year’s loss and the significant $7bn Q3 profit has drawn calls for a windfall tax.

However, the variability in Shell’s profit highlights the precarious nature of oil and gas businesses and fairness of a windfall tax, especially at a time they are investing in clean energy solutions.

“With oil prices down from their triple-digit highs this summer, it was inevitable to see big oil’s profits start to thin. However nearly $7bn in profits for the quarter is nothing to sneeze at, and is a far cry from the losses Shell suffered last year,” said Laura Hoy, Equity Analyst at Hargreaves Lansdown.

“Although the group isn’t printing money at record pace anymore, oil prices are still elevated by historical standards and that means Shell has more than enough to continue boosting shareholder rewards.”

Shell is one of the most widely held shares in UK pension funds and increased distributions will benefit almost all UK pensioners.

Shell profit

Shell income attributable to shareholders was $6.7bn in the third quarter, down from $18bn in the previous quarter. This compared to a $447m loss in the third quarter last year.

Shell recently said they expected refining margins to suffer in the quarter due to lower oil prices. Refining margins were indeed a key driver of falling profit in Q3 but margins remained elevated compared to last year.

Lower liquefied natural gas trading activity also hit profits during the period.

Clean Energy

There is an argument a windfall tax on oil majors such as Shell would be counterproductive in the push towards renewable energy. Shell is investing heavily in their Renewables and Energy Solution units and incurring significant losses as a result.

A windfall tax would like see spending in this unit reduce as its not yet a core revenue generator for Shell.

Shell shares were 3% higher at 2,367 at the time of writing.

A raft of corporate earnings released on Wednesday morning have weighed on the FTSE 100 as investors digested updates from companies including Barclays, Reckitt Benckiser, Standard Chartered and WPP.

The market’s attention has shifted to corporate progress this week as Rishi Sunak’s appointment quells political turmoil.

A trend is building among the FTSE 100’s constituents that is indicating higher revenue figures – and even profits – are not enough to cause a positive reaction in companies’ share prices.

Barclays is a perfect examples. Revenue has increased, profits beat expectations, but share are down, weaker by 1.5% at the time of writing.

It was a similar story for HSBC yesterday. Standard Chartered was down 4.5% at the time of wiring after operating income rose 15% in the third quarter.

There is a clear theme in the banks reporting so far. The benefits of higher interest rates are largely priced in and investors are choosing to focus on the outlook. Potential provisions for bad debts in the coming quarters is a concern for investors as banks prepare for defaults during an economic downturn.

Lloyds’ quarterly updated will be closely watched tomorrow.

Margin pressure

Reckitt Benckiser was the FTSE 100’s top faller, down 5.4% as the consumer company reported higher revenues but falling volumes. Inflation was driving prices higher, but consumers were buying less and squeezing Reckitt’s margins.

Margin pressure is also a problem at WPP. Revenue grew 10.3% on a like-for-like basis but the advertising giant reduced operating margin guidance to 30 to 50 bps, down from 50 bps previously.

WPP shares fell 2.4% to 750p.

Fresnillo was the FTSE 100’s top riser after the precious metals miners improved their guidance as production volumes increased. Fresnillo shares were 2.4% higher at the time of writing.

YouTube has been become a part of everyday life for millions of people and the revenue earned from its adverts have been a huge source of growth for Google parent Alphabet since inception.

However, Alphabet’s earning update has signalled the first decline in YouTube’s revenue as ad sales fell 2% to $7.07 billion, missing analysts estimates of $7.42 billion.

The decline in YouTube sales were symptom of falling online advertising activity as economic conditions soften. Worries about the immediate future of the sector and poor revenue figures have sent Alphabet shares down 6% in the pre-market.

“All good things must come to an end but it is still a jolt to see advertising revenue on Google-owner Alphabet’s Youtube platform fall for the first time on record. While bad news for its parent company, the reversal in fortunes also says something less than encouraging about the state of the economy and is a negative omen for the wider digital advertising space,” said AJ Bell head of investment analysis Laith Khalaf.

Shares in Tech gains have declined sharply this year in anticipation of figures such as those from YouTube. Facebook owner, Meta, has seen its shares decline over 50% in 2022 and investors are bracing for more bad news when they report later today.

Tekcapital have released their October CFO update and provided vital insight into the progress of their portfolio company operations and their overall strategy.

We recently explored Tekcapital’s ‘public venture capital’ strategy which Konrad Dabrowski, Tekcapital Chief Financial Officer alludes to in their months update, reconfirming their desire to list companies early in the lifecycle to achieve commercial benefits.

Tekcapital Five CFO Update Key Takeaways

The Innovative Eyewear IPO has helped deliver on their strategy

Listing Innovative Eyewear in the current market environment was always going to be a challenge. However, the NASDAQ float was largely a success; growth capital was raised and the company has subsequently made key hires.

Innovative Eyewear have since made key executive hires in sales and marketing bringing in experience in growing brands such as New Balance and Luxottica.

Tekcapital are targeting $1 billion valuations

Tekcapital have been open with their views each of their portfolio companies has the potential to reach $1 billion valuations. Their portfolio companies are operating in sectors with large addressable markets with a great number of individuals that can improve their lives with the use of Tekcapital’s technologies.

Guident activity is ramping up

Autonomous vehicle technology company Guident have been busy showcasing their Remote Monitoring and Control Center solutions, and working with their partners to secure new customers.

Testing of the Regenerative Shock Absorber technology has made important progress through a real-world trial at their facility in Boca Raton, Florida. A particularly exciting development is the update on the development of a prototype with one the world’s leading automotive companies.

The MicroSalt growth strategy is well under way

MicroSalt have launched new products and secured new commercial agreements signalling demand for their products. MicroSalt launched two new shakers at the Expo East Food Convention in September and the products are set to be available of Amazon shortly.

The tie-up with a ready meals company demonstrates the breadth of their potential client base and end applications.

Opportunity for special dividends

Tekcapital mentioned the opportunity for special dividends in this update which is core to their shareholder value creation strategy. With the plethora of portfolio company updates, it is easy to lose sight of Tekcapital’s aim to return capital to shareholders through special dividends – at a time developments permit the distributions.

Barclays have released a very respectable set of 3rd quarter earnings this morning and enjoyed attributable profit for the period that beat analysts estimates despite a rise in ‘litigation and conduct’ costs.

Barclays attributable profit rose 10% to £1.5bn in the three months to 30th September, up from £1.37bn in the same period last year. Barclays profit would have been higher if it were not for litigation costs relating to the over issuance of US securities.

“We delivered another quarter of strong returns, and achieved income growth in each of our three businesses, with a 17% increase in Group income to £6.4bn. Our performance in FICC was particularly strong and we continued to build momentum in our consumer businesses in the UK and US,” said C. S. Venkatakrishnan, Barclays Group Chief Executive.

Strong bond trading helped Barclays offset weakness in investment banking activities as higher levels of client activity boosted revenue.

Higher interest rates saw net interest margins rise to 2.78% and net interest income increased 10% to £4.3bn.

However, higher net interest margins are largely priced in after a protracted hiking cycle and investors are keen for insight into banks’ cost management, provisions and outlook.

Barclays outlook

Just as HSBC warned yesterday, Barclays said the economic environment was set to deteriorate and set aside £0.4bn for credit impairments.

However, Barclays were upbeat on their ongoing revenue generation capabilities and saw return on tangible equity in excess of 10%, despite economic challenges.

“Barclays has a lot of strings to its bow, making it more resilient in times of economic difficulty because it’s not reliant on one income stream. However, that’s not to say the group’s immune from hardship,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

“Consumer activity in the UK fell in the third quarter, impacting income. Despite there being higher card transaction-based revenues because of improved spending, borrowers are paying down their debt and taking on reduced loans as the economy weakens. That reduces the group’s ability to earn interest, although higher interest rates have helped net interest margins improve, resulting in a resilient showing overall.”

Barclays shares were 1% lower at 148p at the time of writing.