BP, L&G and Rolls-Royce - the City gives its results verdict

A Buy upgrade for BP (LSE:BP.), further growth for Rolls-Royce Holdings (LSE:RR.) shares and a Europe-leading view of Legal & General Group (LSE:LGEN) are among the takeaways after City firms published post-results research today.

Berenberg responded to stronger-than-expected second-quarter figures by increasing its BP price target to 500p and forecasting a 10% total cash shareholder return in 2026.

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Rolls-Royce shares have hit a fresh record after last week’s beat-and-raise half-year results but Deutsche Bank sees further upside after lifting its price target 22% to 1,220p.

And Bank of America’s analysis of Legal & General results highlights the company’s potential to return 17.5% of market capitalisation to shareholders during the 2026 financial year.

Based on a forward dividend yield of 8.7% and with £1.2 billion of buybacks expected next year, the bank said L&G offered the “greatest capital return story in European insurance”.

It increased its price objective in the income stock by 2% to 285p, which compares with last night’s 256.25p after a downbeat reaction to the half-year results.

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Operating profit of £859 million beat expectations but shares still reversed 2% after the company reported a larger-than-expected 20% drop in shareholders’ equity.

Bank of America notes the figure is still growing on an organic basis, adding that the second half should get a £1 billion boost from the sale of L&G’s US protection franchise.

Investors have also questioned prospects in the UK pension risk transfer (PRT) market as recent M&A, including Brookfield’s acquisitions of Just Group, looks set to increase competition.

Bank of America pointed out that narrowing corporate bond spreads have caused more of a margin challenge than competition in recent years.

It sees wider spreads as the key factor behind margin improvement, adding that its forecasts for 2025-27 are also pointing to L&G's three biggest ever years for PRT volumes.

The bank said: “Returning 17.5% of its market cap to shareholders in 2026 should help L&G to convince investors of its cash, capital and accounting adequacy.

“We think the company has struggled to convince investors but this capital return should help change rhetoric around the stock.”

On BP, Berenberg said a quarterly improvement in the run-rate of underlying free cash flow (FCF) since last autumn has boosted confidence.

Explaining its improved position, the bank said: “Our main concerns to this point with the stock have been about organic FCF generation and the sustainability of shareholder returns.”

The bank believes that cost-cutting combined with better delivery in downstream operations should enable BP to cover the £3 billion a year of share buybacks from organic free cash flow at a Brent crude price of $70 a barrel.

It adds that a $20 billion divestment plan should enable both lower net debt and the continuation of attractive buybacks in 2026, leaving a 10% total cash shareholder return that includes a 6.2% dividend yield.

The shares were today 428p, having risen from 406p prior to Tuesday’s results and 331p in April.

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Rolls-Royce shares have added another 8% to 1,070p in the week since its half-year figures, which included a 43% beat on half-year earnings and improved guidance for 2025.

A bigger-than-expected dividend of 4.5p is due to be paid on 18 September to shareholders on the register at the end of this week.

The biggest element of the results beat concerned the jump in half-year operating margin in civil aerospace to 24.9% from 18% a year earlier.

Power Systems also reported a big improvement in operating margin to 15.3% from 10.3%, primarily driven by continued profitable growth in generation across data centres.

Deutsche Bank said today: “Despite a better-than-expected performance, Rolls-Royce maintained its 2028 targets, but there is potential to outperform, possibly achieving 2028 targets as early as 2027.

“We have raised our price target to 1,220p (from 1,000p) on revised 2025-28 estimates.”