Interactive Investor

ii view: BP lures investors with promise to slash costs

Despite missing profit forecasts, the relatively new CEO of this oil major continues to make his mark. Buy, sell, or hold?

10th May 2024 15:43

by Keith Bowman from interactive investor

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First-quarter results to 31 March

  • Revenue down 12.6% from Q1 2023 to $55.6 billion
  • Adjusted profit down 40% year-over-year to $2.7 billion
  • Net debt up 13% to $24 billion
  • Share buyback of $1.75 billion for Q2, unchanged from Q1
  • Quarterly dividend of 7.27 US cents, unchanged from previous quarter and up from 6.61 cents in Q1 2023

Guidance:

  • Expects Q2 upstream production to be slightly lower
  • Continues to expect capital expenditure for full-year 2024 to be around $16 billion
  • Continues to expect full-year 2024 divestment and other proceeds of $2-$3 billion

Chief executive Murry Auchincloss said:

“We've delivered another resilient quarter financially and continued to make progress on our strategy. Oil production was up and our ACE platform in the Caspian is now producing. We are simplifying and reducing complexity across bp and plan to deliver at least $2 billion of cash cost savings by the end of 2026 through high grading our portfolio, digital transformation, supply chain efficiencies and global capability hubs.”

ii round-up:

Founded in 1908, oil major BP (LSE:BP.) today operates across four areas. 

Oil production and operations account for its core hydrocarbon operations. Gas and low carbon energy combine its natural gas capabilities with low and zero carbon production. 

Customer and products bring together its Castrol lubricants, aviation fuelling, and retail forecourt or ‎convenience sites, with other businesses including its engineering and safety assurance authorities. 

For a round-up of these latest results announced on 7 May, please click here.

ii view:

Commencing operations in Iran in 1901, BP today employs more than 60,000 people in over 60 countries. Group operations include over 20,000 forecourt garages and more than 21,000 electric vehicle charging points, as well as a current 2.7 gigawatts (GW) of installed renewables capacity. The gas and low carbon division generated its biggest slug of profits in 2023 at almost a half, followed by oil production and operations at close to two-fifths, and customer and products the balance of around a tenth. 

For investors, the miss to profit forecasts during this latest quarter can be largely attributed to heightened taxes and interest expense. The tough economic outlook including growth concerns about China continue to offer uncertainty over future energy demand and usage. There have been operational challenges at its major US refinery, a forecast price/earnings (PE) ratio above the three-year average implies the shares are not cheap, while global warming and climate change concerns remain.

On the upside, a new target to deliver at least $2 billion of cash cost savings by the end of 2026 is now being pursued. The diversity of its operations ranging from hydrocarbon production to windfarm and solar and battery storage assets often sees challenges for one area countered by positives for another. Energy majors have become accustomed to dealing with energy price volatility, while the relatively new CEO wants to entice investors with the return of 80% of surplus cash via share buybacks compared to 60% previously.

In all, and despite ongoing risks, a consensus analyst fair value estimate above 600p per share combined with a forecast dividend yield of over 4.5%, will likely be enough to make BP an option for diversified investor portfolios.

Positives: 

  • Pursuing at least $2 billion of cost savings 
  • Focus on shareholder returns

Negatives:

  • Climate change concerns  
  • Uncertain economic outlook

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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