Case Study on British Petroleum (BP) with Nobias technology
British Petroleum (BP), the British oil major, reported earnings last week. The company posted record results, raised its dividend, and announced further share buybacks. BP shares rallied on this news and even though BP shares are up 8.37% on a year-to-date basis, outperforming the S&P 500 by a wide margin, the credible authors and analysts that the Nobias algorithm tracks largely agree that this company has more upside potential ahead.
Nobias 5-star rated author, Sophie Mellor, published a report at Yahoo Finance highlighting several bullish aspects of BP’s recent earnings report. At a high level, Mellor said that “In total, the five oil and gas majors—ExxonMobil, Chevron, Shell, BP, and Total— have announced $59 billion of profits in the second quarter of the year, 45% of which will go directly into the pocket of shareholders.”
BP shares rose by roughly 4.5% after the company’s results were published, largely because of large profits and shareholder returns. Mellor wrote, “BP has reported its highest quarterly profit in 14 years, making it the last of the five oil and gas supermajors to report a record-breaking second quarter in 2022 as the ongoing war in Ukraine continues to send the price of oil soaring.” She continued, “BP’s underlying profits increased threefold compared with a year ago. In 2021, when energy profits were still slowed by depressed demand from ongoing COVID-19 pandemic lockdowns, BP reported profits of $2.8 billion in the second quarter of 2021.”
TWLO Aug 2022
Regarding BP’s $8.5 billion profit figure, Mellor said, “BP’s eye-popping second-quarter profits far exceeded the average analyst estimates of $6.8 billion and were far greater than the $6.2 billion it recorded in the first quarter of 2022.” She continued, “The last time BP’s profits were this high was in 2008 when oil prices peaked at $147.30 a barrel in July 2008 due to rising tensions in the Middle East, increased demand from China, and a falling value of the U.S. dollar. At the time BP reported third-quarter profits in 2008 of $8.8 billion.”
Mellor transitioned to BP’s dividend data, stating, “BP bumped up its quarterly dividend payout to shareholders by 10%, raising it to 6.006 cents per ordinary share.” Furthermore, with regard to shareholder returns, Mellor stated, “BP committed to buying back $3.5 billion of shares in the third quarter of 2022 after completing $2.5 billion of share buybacks between April and July. BP has so far bought back $3.8 billion of shares across the first half of the year.”
Tsvetana Paraskova, a Nobias 4-star rated author, also covered BP’s recent results in an article published at oilprice.com. Paraskova highlighted shareholder returns as well, providing a quote from the company that puts a spotlight on the company’s dividend growth prospects moving forward.
According to Paraskova the company said, "Looking ahead, on average, based on bp's current forecasts, bp continues to expect to have capacity for an annual increase in the dividend per ordinary share of around 4% through 2025 at around $60 per barrel Brent and subject to the board's discretion each quarter.”
Paraskova noted that this oil major isn’t just returning cash to shareholders, but also improving the strength of its balance sheet. She wrote, “BP's net debt fell for the ninth successive quarter to reach $22.8 billion at the end of Q2, down by $4.6 billion from the end of the first quarter.”
There has been pushback by regulators who are concerned about the massive windfall that oil majors like BP have received from the energy crisis created (especially in Europe). BP is producing record profits while English citizens are seeing their energy bills skyrocket. And, as Pedro Goncalves, a Nobias 4-star rated author, points out in another Yahoo Finance report, recent commentary by BP’s management team isn’t helping to tame the negative sentiment surrounding the company from consumers who are struggling to make ends meet.
Goncalves wrote, “Looney, who previously called BP a “cash machine”, could pocket as much as £11.7m, while finance head Murray Auchincloss, who said in February it had “more cash than we know what to do with”, could net up to £6.3m in pay and bonuses.”
In his piece, Goncalves quoted Neil Wilson, the chief market analyst for Markets.com, who said, “BP said the windfall tax introduced last month on profits through to the end of 2025 will result in a one-off deferred tax charge of $0.8bn – a drop in the ocean by today’s numbers it would seem."
Goncalves pointed towards potentially more legislative headwinds for BP, stating, “Friends of the Earth campaigner Sana Yusuf said: “Ministers must impose a much tougher windfall tax on massive oil and gas firm profits. It beggars belief that these companies are raking in such huge sums in the midst of a cost-of-living crisis.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
However, Goncalves notes that not all English legislators are voicing support of further windfall taxes. He wrote that Brexit opportunities minister Jacob Rees-Mogg said, “I’m not in favour of windfall taxes. The energy industry is enormously cyclical. “You need to have a profitable oil sector so it can invest in extracting energy,” Rees-Mogg continued.
At this point in time it’s impossible to predict what, if any, further legislative headwinds will arise for BP; however, it appears that the credible authors and analysts that the Nobias algorithm tracks are content to look past these threats, and instead, focus on BP’s record results and strong guidance figures, because the majority on individuals from each camp remain bullish on BP shares.
58% of recent articles published by credible authors have expressed a “Bullish” bias for BP shares. Right now, 5 out of the 6 credible analysts that Nobias tracks who have expressed an opinion on BP believe shares are headed higher. Today, BP shares trade for $29.66. The average price target currently being applied to BP shares by the credible analyst community is $38.00, representing upside potential of approximately 28.1%.
Disclosure: Nicholas Ward has no BP position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.