Market leaders, known for their reliability and profitability, sometimes lose their way. Companies, whether they are British giants or part of the “Magnificent Seven,” can misstep and struggle with their mission.
Three years ago, Mark Zuckerberg, the CEO of Meta, shifted the company’s focus to building a virtual reality world. He rebranded Facebook as Meta to signal this new direction. However, shareholders were skeptical, and despite spending tens of billions, Meta’s venture into the metaverse has not made the expected impact.
Meanwhile, Unilever faced criticism from fund manager Terry Smith for focusing too much on sustainability at the expense of its business health. Similarly, BP surprised its investors four years ago by announcing a fundamental shift away from fossil fuels. While setting renewables targets was alarming, it was the rapid change and the seeming abandonment of their oil identity that truly concerned shareholders, especially in a world still reliant on oil and gas.
Following disappointing returns and lagging shares compared to competitors, BP is now reassessing its strategy—especially after activist group Elliott Management became a shareholder. BP is winding back its renewable commitments and refocusing on oil and gas to reach its growth goals.
HOLD: BP (BP.)
This week, BP faced lower profits due to impairments and dwindling refining margins. The full-year results release, originally set to coincide with a capital markets update, was postponed due to a medical procedure affecting the CEO. Investors now await clarity on a new strategy leaning towards oil and gas production similar to peers like Shell and Exxon.
The push for change intensified after Elliott Management took an interest in the company, leading to forecasts of cost-cutting and dividend increases. BP’s underlying profit fell a third to $8.9 billion, impacted by industry-wide challenges. Despite this, the company beat Q4 expectations with an operating profit of $4 billion.
CEO Murray Auchincloss stated that BP is laying the groundwork for future growth and plans a strategic reset to enhance performance and increase shareholder returns. However, with divestments and project challenges looming, production is expected to decline in 2025.
Though aggressive changes are anticipated, shareholder returns are not likely to jump in the immediate future. Analysts foresee a reduction in BP’s buyback program, as recent cash flow figures indicate insufficient coverage for quarterly buybacks.
BUY: Barclays (BARC)
Barclays reported strong growth as it kicked off earnings season for UK banks. Total income grew by 6% to £26.8 billion, with pre-tax profit increasing by almost 25% to £8.1 billion. The rise was partly due to net interest income, bolstered by an acquisition that boosted overall earnings.
Barclays has a significant investment banking arm, which performed well, resulting in 7% revenue growth in 2024. Cost-cutting measures have also shown success, with the cost-to-income ratio improving.
The bank announced a £1 billion share buyback alongside a full-year dividend. These actions contribute to its plan of returning £10 billion to shareholders over the next few years. Despite some initial disappointment from investors regarding a potential provision, Barclays shares more than doubled in the past year, presenting an opportunity to retain confidence in its long-term prospects.
HOLD: PZ Cussons (PZC)
PZ Cussons experienced a 7% rise in shares after the hygiene and beauty products firm returned to profit, despite a revenue decline. The company managed to cut costs significantly, which helped improve its financial standing.
Despite revenue dropping due to currency exchange issues, the firm’s performance in local markets showed promise, particularly in Africa and the UK. They are on track to meet annual profit expectations and raised their operating profit guidance.
Analysts remain cautiously optimistic, but further updates on Africa operations and potential business sales are awaited as investors navigate the company’s future amidst challenging conditions.