Interactive Investor

BP success enables share buyback programme

27th April 2021 09:30

Keith Bowman from interactive investor

Strong profit growth and a dividend yield of over 5% repays shareholder faith.

First-quarter results to 31 March

These initial results for 2021 follow a transitional year for BP (LSE:BP.) in which it initiated a new strategy to become an integrated energy company - solar and wind as well as fossil fuels. 

Today’s update builds on the change of emphasis and progress already made. Gas and low carbon energy reported production grew by 1% compared to the first quarter of 2020. The renewables pipeline expanded by 2.9GW. Rising energy prices helped increase adjusted, or replacement cost profit for gas and low carbon by more than 200% year-over-year to $3.43 billion. 

For the wider company, a more than doubling of the oil price since pandemic induced lows in March last year played its part in boosting profits. Reported quarterly profit of $4.7 billion compares to $1.4 billion this time last year. 

Cash generation and an earlier than expected banking of $4.7 billion in asset disposal proceeds helped the oil major reduce debt ahead of plan, allowing the commencement of a $500 million share buyback programme. Nearly $15 billion of a targeted $25 billion of asset disposals come 2025 has been agreed.  

As for the share price, it has risen by close to 50% since late October just prior to the announcement of vaccine development success, although it is down around 3% over the last year, similar to rival Royal Dutch Shell (LSE:RDSB)

In all, and on the downside, a change of strategy now brings BP into competition with existing renewable energy players and echoes similar pushes by other oil majors. Asset disposals remain ongoing and costs from the Gulf of Mexico oil spill continue to be suffered. 

More favourably, the return of a share buyback programme is a clear positive. The tough decision to cut the dividend is now behind it, with a current dividend yield in the region of 5% still highly attractive in an era of ultra-low interest rates. For now, and with significant action already taken under the relatively new CEO making an impact, market consensus opinion is likely to continue pointing towards a 'buy'.

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