Stock Brief - BP (LON:BP.)

25th Nov '21 by Keelan Cooper

27 comments 4014 reads

After the onset of the Covid-19 pandemic in 2020, global primary energy consumption witnessed its largest decline since 1945. Oil prices turned negative for the first time in history, reaching record lows of -$40 a barrel. The result was that BP ended the year with $20 billion worth of losses, a growing debt pile, and a precarious outlook.

However, a swift global economic recovery, fueled by record stimulus packages, has seen a remarkable restoration in oil and gas demand. OPEC has intervened to maintain tight control over supplies over the past year, and it now appears as though the oil market has stabilised at a much higher level today, with Brent oil currently trading at over $80 a barrel.

At these elevated prices, BP generates substantial amounts of free cash flow. The company is now paying down debts whilst simultaneously increasing dividend payments to shareholders and carrying out substantial share buybacks to the tune of $1 billion per quarter (as long as Brent remains above $60 a barrel).

Despite the impressive financial performance this year, and the recovery of oil prices to beyond pre-pandemic levels, BP’s share price has lagged behind. The company now trades on a forward PE ratio of 6.6 and pays out a forward dividend of just under 5%.

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What are the company's principal business activities, how does it generate its revenues?

BP is one of the largest integrated energy businesses in the world, with operations in over 70 countries, across 6 continents. The company’s primary source of revenue generation still comes from Oil & Gas production, with the company producing just under 3.5 million boepd (barrels of oil equivalent per day) in 2020.

BP is currently organised into four business groups: Production & operations, Customers & products, Gas & low carbon energy, and Innovation & engineering.

Production & operations - At the heart of BP lies its P&O division, where it seeks to discover and develop hydrocarbon resources, operate oil and gas production assets, as well as refineries, pipelines and terminals around the world.

Customers & products - Is focused on innovation in order to grow the company’s convenience and mobility offering to a wider range of customers. The division looks after Castrol lubricants, aviation fuelling, and mobility and ‎convenience as well as fuels

Gas &…

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Rusty2

26th Nov '21

Large caps are over covered elsewhere but small caps are neglected. Many small caps are less volatile than £BP share prices over the last few years. Why invest in uk large caps when they have underperformed other indexes?

GUYUKTRADER

I agree with pinstripe - all stocks whether small, mid or large should have a place to be discussed on Stockopedia regardless if stocks are discussed on other platforms. On Stockopedia there is almost a cult like following for highly volatile small caps partly as position taken by the company to place emphasis on small caps by using specific contributors to report on a daily basis.

I don't have an issue with regards to small or large - as a trader would be nice though to see a variety of stocks discussed.

DYOR and good luck to all

Large caps are discussed, probably the most discussed stock on here is Boohoo (LON:BOO) which is not a small cap. Still over £2Bn even after the fall. Other large caps are discussed but there seems less interest.

There has been 3 large cap articles in the last 2 weeks, Itv (LON:ITV), Burberry (LON:BRBY) and now Bp (LON:BP.)

I am always interested in reading all the different caps even though I am a technical trader. Boohoo (LON:BOO) I think graduated from the small caps report as reason for being discussed so much (along with all the fashion type retailers).

Boohoo (LON:BOO) was a large cap until recently, so has no place on the Small Cap Value Report.

Other large caps don’t seem to attract much interest. Why should Stockopedia focus more on large caps, when there is more interest in mid and small caps.

There are a lot more small and mid caps than large caps as well. Proportionally large caps probably do get a similar coverage.

Looking at the discussion board, large caps hardly any posts, small caps generally a lot more posts. Burberry (LON:BRBY) only 6 comments, Itv (LON:ITV) 3, Phoenix Copper (LON:PXC) 72.

I get it you are not interested in mid / large caps that's fine. I am interested and happy when commentary is provided for all the different caps. I like reading about the overall picture of our stock market.

letap73

There is actually nothing to stop you posting about any stock on the daily thread provided by Paul and Jack. Obviously, you can't expect Paul and Jack to respond but there are posters who will respond to genuine news with regards to results, trading updates etc.

The likes of Royal Mail (LON:RMG) have appeared on those threads recently.

Hi letap73 - that is a thread dedicated primarily to small caps and I do enjoy reading the expert analysis. All that I said is that I enjoy reading about all cap sizes so not to discourage from experts to continue to write about BP etc in the future.

I’m interested in them, I hold quite a few, even Bp (LON:BP.), I hold less small caps, than mid/large caps. So you don’t get it. As I said there are far small and mid caps than large caps.

It might actually be worth suggesting that a large/mid cap daily thread be put up - the opening post could be in the style of a Mr C post? The analysis would then come from regular posters.

LongValue

That was an excellent summary of a complicated business. Bp (LON:BP.) is a stock I have held and I have every intention of getting back into it. But I believe that we are due for a major market correction (A crash) and, so, I think that I will be able to re-enter at a price lower than it stands today. That said, it might be worth recalling what Bernard Looney, CEO of BP said in August 2021.

“ On average at around $60 per barrel, we expect to be able to deliver buybacks of around $1.0 billion per quarter and to have capacity for an annual increase in the dividend per ordinary share of around 4%, through 2025.”

To some extent, that underpins the investment case. I still think that its stock price will be hit in a market sell-off. But providing there is not a complete and sustained collapse in oil prices, it strikes me as being in a very strong position as it morphs from big oil into big energy. My understanding is that the demand for oil looks set to wane over the very long-term ie 2040 onwards. But the opposite is true of energy demand, including natural gas. I can find no evidence to support a case for falling long-term energy demand. On the other hand, there is plenty of evidence to support a dramatic fall in the search for new oil resources. Oil reserves are being depleted and not replaced.

Incidentally, I get the impression that some investors seem to believe that big oil and gas is giving way to a patchwork of small operators in a cottage industry of energy providers. In my view, whether we like it or not, the energy sector will be dominated by a small number of major players. Much like the present oil and gas industry. The capital expenditure required to provide clean and firm (Reliable) energy will be huge. And it will be very very complex with many moving parts. So, I believe, the real issue is who those key players will be? In my opinion, BP will be among that group.

sady

Thank you for the above analysis.To much liquidity in the markets have led to an increase in inflation .How do the central banks control inflation by increasing interest rate .However this can destabilise the property market, which is already vulnerable due to Brexit and major banks and financial institution moving their offices to the Euro zone.Covid hasn't helped either with leisure and travel industry worst affected area.The new variant found in South Africa and Hong Kong has triggered a market crash. The new variant is as deadly as before probably not.Why?the virus has mutated to survive therefore has to be weaker than the original strain.

The Govt has managed to control inflation target (2%)by keeping the oil prices low in recent years.The single most important factor in the economy ,where oil is needed for transportation ,travelling ,manufacturing,,extraction of raw materials etc, etc.If the govt can keep price of oil low then inflation can be reduced without needing to increase the interest rate.

BP needs to survive if their is deflationary pressure on oil prices and trend to move towards cleaner sources of energy.Bp needs to reinvent itself .

How?

Need to think.

Keelan Cooper

Hi Berksbee,

Thank you for your feedback!

We are always looking to provide more comprehensive coverage of the markets, so we're glad to hear that you are enjoying the mid/large-cap company analysis articles!

I personally don't hold a position in BP at this time, but if oil continues to hold above $60 in the coming months I think Oil & Gas majors such as BP would make a good addition to the portfolio.

Hope you have a nice weekend!

Kind regards,

Keelan

DaviStoVest

With apolgies to Keelan for tearing off on the side-track.

Do I appreciate an attempt to look closely at and assess the business situation and investment attractiveness of bigger companies? You bet I do!

Do I think Stocko pays enough attention and puts in enough effort to analysing mid/large cap stocks? You bet I don't!

Stocko is hugely frustrating in its fixation on small stocks. I will not continue to pay for this very much longer. It's a platform that has an obsession with the small-caps in which I have only an interest.

Many of your subscribers have long been pressing for change. I will be gone soon. Stocko offers me not much value.

dmcarver

27th Nov '21

Interesting analysis. Would be even more so if a like exercise were done for Shell. These two names are similar in many ways and represent a contrast with their U.S. competitors.

It also might be worth remembering that many large/mid-cap UK listed companies are small by international standards. A broad generalisation, I know, but I get the impression that most small quoted companies remain small and that's a global phenomenon. While large public companies are often simply getting larger.

In the UK, large companies don't often grow that much, that's why the FTSE100 in the last 20 years has hardly gone up at all. The growth in the UK is in small to mid caps not large caps.

In the US is a different picture.

I'm really looking for small companies that will grow into large companies, a few that have done that are: Fevertree Drinks (LON:FEVR), Burford Capital (LON:BUR), Boohoo (LON:BOO), Future (LON:FUTR), £AHT and £JD.

Saparmar

28th Nov '21

I bought more £BP shares (I was already holding it since 2017) when it went down to 182p during first wave, just on the basis that

it's still one of the largest oil producing company
paying dividend regularly
Have a plan for switch over to green energy in future and increasing their investment in that every year.
fossil fuel is not going anywhere at least for next 7-10 years, to be completely free from fossil fuel will be at least 15+ years

I think it will much longer than 15 years, I can’t see countries such as India using mostly electric cars by then, yes US and Europe may have mostly switched over by 2036. Also what about aeroplanes, ships etc?

Also oil is used to produce many other products.

I thought there be more mention of gas, I don’t know how much gas Bp (LON:BP.) Produces but with the current prices, they must making considerable profits from gas. I read an article on Royal Dutch Shell (LON:RDSB) which said about 20% of their profit increase in 2021, was due from gas, these were pretty rough figures mind you.

I had been selling some of my Bp (LON:BP.) as l thought oil prices were near the peak but I may buy some back if they fall below 300p.

CharlesRixon

12th Jan '22

BP doing well , seems to have broken above resistance level...same with RDSB, and Bank shares

Stock Brief - BP (LON:BP.)

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Keelan Cooper

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