[February 06, 2006]

Buyback in view as BP heads for GBP12bn profit

(Evening Standard Via Thomson Dialog NewsEdge)IT IS unlikely that full-year profits from BP tomorrow will match the GBP12.9 billion produced by rival Shell last week - a record for any UK-listed company.

Even so they are expected to make impressive reading and, as in the case of Shell, will be bolstered by the soaring price of oil.

Fullyear profits should come in at between $21 billion and $22 billion (GBP12.4 billion).

But shareholders will focus on any plans the oil giant may have of returning spare cash.

During the past five years BP has spent $25 billion buying back its own shares, with a record $12 billion spent in 2005. Shell, by contrast, has spent $5 billion annually buying back its own shares.

Broker Teather & Greenwood expects BP's buyback programme to grow again this year and will include the $9 billion proceeds from the disposal in the autumn of its petrochemicals operation Innovene. Broker Williams de Broe estimates the return to shareholders could be as high as $20 billion through a mixture of buybacks and higher dividends.

For the fourth quarter to December, BP is expected to weigh in with a net profit, including nonoperating items, of between $5.4 billion and $6 billion (GBP3.16 billion). That compares with $4.76 billion for the corresponding period. Last month the group warned its profits would include a clutch of non-operating charges contained in the final quarter, including a $1.3 billion accounting charge relating to its UK gas contracts and $400 million relating to its European restructuring programme.

The one thing that blighted Shell's performance was its oil and gas reserves replacement, which is currently as low as 60%. In 2004 BP reached 106% - or 110% if its Russian joint venture TNK-BP is included.

Last month's trading update revealed that fourth quarter production fell from 4.09 million barrels a day to 4.01 million, of which TNK-BP contributed 1.02 million barrels a day.

Soaring gas prices will have provided BG Group with a big jump in profits when fourth-quarter numbers are unveiled on Thursday.

Brokers have pencilled in net profits of GBP463 million for the three months to December - up from GBP236 million a year earlier. The group has already whetted investors' appetites by flagging a "significant" rise in fourth-quarter volumes of around 17%, helped by the surge in demand for gas, which accounts for 70% of BG production.

Europe's biggest drugmaker GlaxoSmithKline will report a 15% increase in full-year pre-tax profits to GBP6.62 billion when it reports on Wednesday.

Pre-tax profits for the final quarter should come in at GBP1.46 billion on sales of GBP5.64 billion. Much of the growth in profits comes from sales of the blockbuster asthma drug Seretide and diabetes treatment Avandia.

Full-year numbers from Rolls-Royce on Thursday are expected to see a 59% rise in full-year pretax profits to GBP579 million, helped by after-sales service. This end of the market continues to grow, which helps offset difficult trading conditions in the civil aerospace market.

Cheered by the outlook for the Japanese economy, investors in Tokyo chased share prices to a new five-and-a-half-year high today.

Sentiment was bolstered by a big rise in the diffusion index of leading economic indicators that pointed to a large expansion in the economy in the months ahead.

Buyers came in for the likes of Fuji Heavy Industries and the Nikkei 225 ended the day up 88.12 points at 16,747.76.

In Hong Kong, the Hang Seng index finished the morning session 67.12 points higher at 15,496.85.

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