ii view: BP – performing while transforming

A strong recovery in profit and a dividend yield of over 3.5%. Buy, sell, or hold?

Full-year results to 31 December

• Profit attributable to shareholders of $7.6 billion (£5.62 billion), up from loss of $20.3 billion in 2020
• Underlying replacement cost profit of $12.8 billion (£9.47 billion), up from a loss of $5.7 billion
• Net debt down to $30.6 billion (£22.6 billion) from a previous $38.9 billion
• Q4 dividend payment up 4% from Q4 last year to 5.46 US cents per share
• Total share buybacks over the year of $4.15 billion

Guidance:

• Expects to make share buybacks of around $4 billion per annum 
• Expects to increase the annual ordinary dividend by around 4% through to 2025

Chief executive Bernard Looney said:

"We've strengthened the balance sheet and grown returns. We're delivering distributions to shareholders with $4.15 billion of buybacks announced and the dividend increased. And we're investing for the future. We've made strong progress in our transformation to an integrated energy company: focusing and high grading our hydrocarbons business, growing in convenience and mobility and building with discipline a low carbon energy business - now with over 5GW in offshore wind projects - and significant opportunities in hydrogen."

ii round-up:

Founded in 1901, BP (LSE:BP.) in 2020 redefined its operations into four arenas. 

Production and operations now bring together its core hydrocarbon operations into one business. 

Customer and products combine its Castrol lubricants, aviation fuelling, and retail forecourt or ‎convenience sites. 

Gas and low carbon energy integrate its existing natural gas capabilities with low and zero carbon businesses and markets. 

Finally, other businesses house operations such as central engineering and safety.

For a round-up of these latest results, please click here.

ii view:

BP is now pursuing a new strategy to become an integrated energy company. Along with its traditional oil and gas business, it’s also looking to move into and grow areas such as Electric Vehicle (EV) charging, hydrogen, wind and biofuels. It recently acquired EV fleet charging provider AMPLY Power and has agreed to extend its convenience partnership with Marks & Spencer (LSE:MKS) until at least 2030. Its been adding to its wind generation business and recently announced plans for a new green hydrogen production facility on Teeside. 

It plans to reduce its own operational emissions by 50% by 2030 versus a previous target of 30% to 35%. It is on track for its 20GW target of renewable power capacity by 2025 with 50GW by 2030. It plans to be a very different kind of energy company by 2030. 

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For investors, recent calls for a windfall tax should not be ignored. The price of oil remains highly volatile, leaving potential profits unpredictable, while competition to buy renewable assets has risen significantly in the last few years. Owning both fossil fuels and renewables together can also ask questions of institutional investors’ Environmental, Social, and Governance (ESG) policy. 

On the upside, BP’s management sees its transition towards climate friendly fuels as an opportunity. Shareholder returns remain a focus with both a share buyback programme and a progressive dividend policy being pursued, while a historical and estimated future dividend yield of over 3.5% is relatively attractive in an era of ultra-low interest rates. For now, and with the consensus analyst estimated fair value price sat at just over 460p per share, investors may wish to remain patient.  

Positives: 

• Pursuing a greener future strategy
• Attractive dividend payment (not guaranteed)

Negatives:

• Competition in greener energy arena intensifying 
• Subject to oil price volatility

The average rating of stock market analysts:

Buy