Weekly StockWatch: UK Windfall Tax Weighs on BP & Shell, Nvidia Posted Record Revenue, Alibaba Showed Resilience & More

  • BABA.us
    (${instrument.percentChange}%)
  • BP.uk
    (${instrument.percentChange}%)
  • JD.us
    (${instrument.percentChange}%)
  • NVDA.us
    (${instrument.percentChange}%)
  • XPEV.us
    (${instrument.percentChange}%)

UK Windfall Tax

The UK Chancellor of the Exchequer, Rishi Sunak, announced on Thursday a tax of 25% on profits of oil and gas companies, as part of a package to support households, given the high inflation and energy prices. The Energy Profits Levy - often referred to as a windfall tax - will be of temporary nature and it will be phased out when oil and gas prices return to historically more normal levels. [1]

The Chancellor said that "It is possible to both tax extraordinary profits fairly…and incentivize investment", as the plan includes an Investment Allowance, aimed to incentivize energy companies to reinvest their profits.

Surging oil and gas prices due to the war in Ukraine, have driven profits for major energy firms, which however have also taken a hit form exiting Russia.

British Petroleum (BP) had reported Underlying RC Profit of $6.245 billion for the first quarter of the year, compared to $4.065 billion in Q4 2021 and $2.630 billion in Q1 2021. Despite that, it registered a headline Loss of more than $20 billion, partly driven by the divestment of its 19.75% shareholding in Rosneft. [2]

Rival Shell had seen its adjusted Earnings rise to $9.13 billion in the same period, from $6.391 in Q4 2021, but took a $3.9 billion hit from exiting its Russia business. [3]

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BP.uk and SHEL.uk drop today in the aftermath of the windfall tax announcement in the UK, but head towards the conclusion of a positive week. These are global companies and the 25% levy may have not have a significant impact.

Nvidia Conservative Guidance

The graphics card maker reported record Revenue of $8.288 billion in Q1 FY2023, up 46% from a year ago and 8% compared to the previous quarter. Its Data Center segment brought in $3.75 billion and surpassed the Gaming business which generated $3.62 billion, while both were record numbers. [4]

The company paid a $1.35 billion charge for the Arm acquisition termination, whereas CEO Jensen Huang took note of the record results, which came in backdrop of "a challenging macro environment".

These challenges were evident in the company's conservative forward guidance for Q2 FY2023, as it projects Revenue of $8.10 billion plus or minus 2%, which includes a $500 million impact relating to Russia and the COVID lockdowns in China.

NVDA.us opened Thursday lower after the results, but reacted quickly and closed the day with profits, helped by the broader improved sentiment is US markets. The stock is having a bad year, along with the broader tech sector and erases nearly 50% from its November record high, as of yesterday's close.

Alibaba Solid Results

The Chinese retail and technology giant reported its financial results on Thursday before the US market opened, which showed resilience, driven by the e-commerce segment which was heled by the lockdowns in China. [5]

Alibaba reported Revenue growth of 9% year-over-year in the quarter ended in March (Q4 FY2022), which is healthy, albeit not impressive. The RMB 204.052 billion generated, were lower than the previous quarter (RMB 242.580 billion).

Alibaba Group CEO Daniel Zhang stressed that the firm delivered on the goal of serving one billion annual active consumers in China this past quarter and talked of "macro challenges that impacted supply chains and consumer sentiment".

The company refrained from providing forward guidance, given the "risks and uncertainties" from the COVID-19 situation in China.

Last week, rival JD.com had reported Revenue of RMB 239.7 billion for the first quarter, up 18% compared to last year, which also marked a less than impressive growth for the firm's standards. CEO Lei Xu had talked of "healthy growth" in a backdrop of a "challenging external environment". [6]

Markets reacted positively to Alibaba's financial results, as BABA.us rallied almost 15% on Thursday, as it tries to pause its three-week losing streak.

EV Maker Xpeng Mixed Results

The Chinese EV maker registered an impressive 152.6% Revenue growth in Q1 2022 year-over-year, with RMB 7.454,9 billion, but this was around RMB 1 billion short of the Q4 2021 revenues. The company also saw its Net Loss widen to around RMB 1.7 billion, although its Gross Margin strengthened to 12.2%, from 11.2% a year ago and 12.0% in the previous quarter. [7]

Xpeng Auto delivered 34,561 vehicles in Q1, a significant decline form the 41,751 units of Q4 2021, but 152.6% higher compared to a year ago. Deliveries reached 9,002 vehicles in April, with the P7 smart sports sedan coming on top.

The forward guidance was disappointing, since the firm expects to hand down just 31,000-34,000 vehicles in Q2, while Revenues are projected at RMB 6.8-7.5 billion.

Earlier in the month, Xpeng was included in what is commonly referred to as the "Naughty List" of US Securities and Exchange Commission (SEC), which a list of companies that face risk of delisting from the US stock markets for failing to comply with US auditing procedures. [8]

XPEV.us dropped after the earnings report, but has been recovering over the last couple of days.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 27 May 2022 https://www.gov.uk/government/speeches/cost-of-living-support

2

Retrieved 27 May 2022 https://www.bp.com/content/dam/bp/business-sites/en/global/corporate/pdfs/investors/bp-first-quarter-2022-results.pdf

3

Retrieved 27 May 2022 https://www.shell.com/investors/results-and-reporting/quarterly-results/2022/q1-2022/_jcr_content/par/toptasks_1119141760_.stream/1651682600274/4beba247de9a1e5dcdbc1685abfdc95d07aca3f7/q1-2022-quarterly-press-release.pdf

4

Retrieved 27 May 2022 https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-first-quarter-fiscal-2023

5

Retrieved 27 May 2022 https://www.alibabagroup.com/en/news/press_pdf/p220526.pdf

6

Retrieved 27 May 2022 https://ir.jd.com/news-releases/news-release-details/jdcom-announces-first-quarter-2022-results

7

Retrieved 27 May 2022 https://ir.xiaopeng.com/news/news-details/2022/XPeng-Reports-First-Quarter-2022-Unaudited-Financial-Results/default.aspx

8

Retrieved 05 Dec 2022 https://www.sec.gov/hfcaa

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