Interactive Investor

ii view: BP transforms as the dividend grows

Shares for this oil major rose 44% during 2022 but are little changed during 2023. We assess prospects.

17th August 2023 15:47

by Keith Bowman from interactive investor

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Second-quarter results to 30 June

  • Underlying replacement cost profit down 70% year-on-year to $2.6 billion (£2 billion)
  • Dividend up 10% from the prior first quarter to 7.27 US cents per share
  • Completed over $10 billion of share buybacks over the last year
  • Net debt up 4% year-over-year to $23.7 billion (£18.5 billion)

Chief executive Bernard Looney said: “Another quarter of performing while transforming. Our underlying performance was resilient with good cash delivery - during a period of significant turnaround activity and weaker margins in our refining business. We’re delivering our strategy at pace - we’ve started up two major oil and gas projects to help keep energy flowing today and we’re accelerating our transformation. And we’re delivering for shareholders growing our dividend and announcing a further share buyback. This reflects confidence in our performance and the outlook for cash flow.” 

ii round-up:

Founded in 1901, oil major BP (LSE:BP.) today operates across four arenas. 

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

Customer and products combine 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 1 August, please click here.

ii view:

Oil major BP employs more than 60,000 people in more than 60 countries. Competing against rivals including Shell (LSE:SHEL) and TotalEnergies SE (EURONEXT:TTE), oil production and operations generated its biggest slug of profits in this latest quarter at almost 50%, followed by gas and low-carbon energy at close to 40%, and customers and products the balance. Its retail stations total over 20,500 with other outlet brand names including Aral in Germany and Thorntons in the US. Under its transition plans, its global investment in lower-carbon energies, convenience stores and power trading businesses increased from around 3% in 2019 to approximately 30% in 2022. 

For investors, the uncertain economic outlook, including growth concerns regarding China, now overshadows potential energy demand and usage. Costs generally for businesses are elevated, energy prices have in recent years proved highly volatile swinging between the pandemic and war in Ukraine, while global warming and climate change concerns are not going away. 

On the upside, energy majors have arguably become accustomed to dealing with energy price volatility. A diversity of operations exists ranging from hydrocarbon production to wind farms, and strong cash-flow generation has enabled net debt to be reduced since the elevated levels reached during the pandemic, while continued share buybacks sit alongside a forecast future dividend yield of over 4%.   

For now, and while the price of oil is likely to remain volatile, a consensus analyst estimate of fair value standing at close to 600p per share looks to offer some grounds for continued longer-term optimism.

Positives: 

  • Pursuing an Integrated Energy Company strategy 
  • Focus on shareholder returns

Negatives:

  • Climate change concerns  
  • Highly 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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