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Regardless that I anticipate the FTSE 100 to carry out effectively at an index stage subsequent 12 months, this doesn’t imply I believe all constituents will. In reality, there are members with some crimson flags which have just lately made me involved. Listed here are two examples I’m being cautious about.
The oil outlook
The primary one is BP (LSE:BP). Over the previous 12 months, the share value is down 15%.
A few of this drop has been attributable to weak spot within the oil value. In the beginning of this month, I flagged up the US Vitality Data Administration’s (EIA) November power outlook report. The forecasts didn’t point out any vital rally within the oil value if we quick ahead to this time subsequent 12 months.
Provided that BP is among the main world oil and gasoline producers, income is impacted by the market value of oil. So if the forecast is appropriate and oil costs don’t enhance a lot subsequent 12 months, income could be impacted.
Additional, Q3 outcomes confirmed the weakest underlying substitute value revenue for the agency since This autumn 2020. This measure of revenue is one which the enterprise makes use of as a key metric to measure efficiency. A part of this was because of weaker refining margins, in addition to a slowdown in world oil demand. This doesn’t bode effectively for 2025.
BP shares may shock me subsequent 12 months. If different areas of the enterprise resembling pure gasoline, biofuels and renewable power carry out effectively, this might assist to offset different divisions.
Potential complications
One other firm I’m cautious about is Barclays (LSE:BARC). This may shock some on condition that I owned Barclays shares till comparatively just lately. Nevertheless, over the previous month or so there have been some developments that I’m somewhat bit apprehensive about.
For a begin, the continued FCA investigation into potential mis-selling of automobile finance is attracting increasingly consideration. This doesn’t simply affect Barclays, however the dimension of complete potential sector fines may run into the tens of billions of kilos based on analysts. It’s not the one reputational affect for the financial institution, with information final month of Barclays being fined £40m for reckless offers over the past monetary disaster.
Additional, the Q3 outcomes confirmed that web curiosity earnings is beginning to stall as rates of interest start to drop. Within the first 9 months of this 12 months, web curiosity earnings fell by 1% versus the identical interval in 2023. Trying forward, I anticipate not less than three rate of interest cuts from the UK in 2025. This could act to additional cut back the earnings the financial institution makes.
The truth that the inventory is up 84% over the previous 12 months exhibits that these considerations haven’t put buyers off thus far. Regardless of the rally, the price-to-earnings ratio is barely 9.54. Due to this fact, some may nonetheless see this as an affordable inventory to think about…. however not me.