It's a great income stock, and these numbers justify investor interest, writes our head of markets.
BP's (LSE:BP.) strategy is a marathon, not a sprint, and this latest update for the second quarter and half-year shows that the company remains reassuringly on track.
Underlying replacement cost profit was strongly ahead compared to the previous quarter and above expectations, although marginally lower year-on-year. Operating cash flow increased by 15%, sterling's latest dip will enhance BP's earnings in due course, and the quarter also marks a milestone in that the final acquisition payments were made to BHP Group (LSE:BHP).
In addition, the Gulf of Mexico disaster payments are now well within the manageable range, the Downstream division (refining and processing) continues to be a strong contributor in underpinning profits. The company's prodigious cash flow enabled a share buyback over the half-year of $125 million, let alone the punchy dividend yield of 6.1%, meaning that, on the whole, the stock has something for everyone.
Source: TradingView Past performance is not a guide to future performance
Even so, exogenous factors remain, as well as those within BP's control. Geopolitical concerns and a lower oil price both work directly against the company, although BP tends to base its financial assumptions with the oil price at around $55 per barrel, meaning that it remains comfortable at anything above that level.
Net debt has also increased to $46.5 billion, which is a matter in need of attention. Here, the company anticipates a reduction given strong cash flow as well as its ongoing divestment programme. These are matters for some slight concern should the company's fortunes dip, and particularly in light of its ambitious capital expenditure aims, not least in being part of the energy transition to lower carbon.
BP is well-run and well-regarded, and the initial reaction to the numbers is rather more positive than its share price performance of late. The shares had dipped 6% over the last quarter and 7% over the last year, the latter of which compares to a decline of just 0.2% for the wider FTSE 100 index.
Despite this, BP's status as an archetypal core portfolio constituent is in little danger and, given its current positioning, the market consensus of the shares as a ‘buy' will surely remain intact.
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