BP PLC (LON: BP.) – Expects Q1 FY21 reported production to remain slightly higher than Q4 FY20.

BP PLC is a multinational oil & gas company, engaged in the global energy business with operations in Europe, North and South America, Australasia, Asia, and Africa. Moreover, the Company has several brands such as bp, Castrol, Aral, ampm, Amoco, and Wild Bean Café. Furthermore, BP provides heat, light, and mobility to customers worldwide with an ambition to be a net-zero company by 2050 or sooner. The Company is a constituent of the FTSE 100 index.

On 27 April 2021, the Company will announce Q1 FY21 results for the three months ended 31 March 2021.

(Source: Company website)

Recent Trend of Dividend payments

(Source: Company result)

BP had paid a quarterly dividend of 5.25 US cents per share on 26 March 2021 with respect to Q4 FY20. The ex-dividend date was 18 February 2021. Furthermore, the total FY20 dividend remained at 31.50 US cents, lower than the levels of FY19.

Growth Prospects and Risk Assessment

BP had completed the formation of its strategic US offshore wind partnership with Equinor during January 2021, including the purchase of 50% in the Empire Wind and Beacon Wind projects. Moreover, BP had announced the plans to develop a “green” hydrogen project at Lingen refinery in Germany. The Company had expected to achieve a net debt target of USD 35 billion by the end of Q1 FY21, driven by USD 4.7 billion of net proceeds received from several disposals during the quarter. The Group remained committed to returning at least 60% of surplus cash flow through share buybacks upon achievement of net debt target. The three major upstream projects had begun production during Q4 FY20.

Furthermore, BP remained on course to achieve a disposal proceeds target of USD 25 billion between H2 FY20 and FY25 as it had already completed transactions of around USD 14.7 billion.

BP is exposed to various risks, such as the wide range of operations worldwide expose the risk of political developments to the economic and operating environment. The top-line business of BP might get impacted by oil & gas price fluctuations, exchange rate fluctuation and a general macroeconomic outlook.  Moreover, the inability to access and progress upstream resources in a timely manner could impact the long-term replacement of reserves.  The unfavourable climate change could adversely affect the operations and might increase the cost. 

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of BP PLC.

Recent Developments

On 06 April 2021, BP updated that it had expected to reach a net debt target of USD 35 billion during the first quarter of FY21. Moreover, the net debt was USD 38.9 billion as of 31 December 2020.

Financial and Operational Highlights for the twelve months ended 31 December 2020 (as of 02 February 2021)

(Source: Company result)

• The Company had reported an underlying RC (“Replacement Cost”) loss of negative USD 5,690 million during FY20 as compared to a profit of USD 9,990 million made during FY19.
• The total proceeds from divestment during FY20 was USD 5.5 billion, which includes USD 3.9 billion of net proceeds from the petrochemicals divestment.
• The organic capital expenditure was around USD 12.0 billion during FY20, while it was USD 15.2 billion for FY19.
• BP had delivered operating cash flow of USD 13.8 billion for FY20, excluding Gulf of Mexico oil spill payments.
• Meanwhile, the Company had reported a gearing of 31.3% as of 31 December 2020.
• The Company had reported a 9.9% decline in FY20 production due to the impact of divestments in BPX Energy & Alaska, and it remained around 2,375 mboe/d (thousand barrels of oil equivalent per day).

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters)

On 21 April 2021 at 12:35 PM GMT, BP shares were trading at GBX 294.65, up by 0.99% against the previous day closing price. Stock 52-week High and Low were GBX 376.54 and GBX 188.52, respectively.

BP's prices are trading in a rising channel formation for the past six months and forming a series of higher highs and higher lows. Currently, the prices are trading around the lower band of the pattern that is acting as an important support zone and indicating the possibility for an upside direction. The momentum indicator RSI (14-period) is trading at ~53 levels coupled with the trend-following indicators 21-period SMA and 50-period SMA, sustaining below current market price and further supporting a positive stance for the stock.

In the last six months, BP’s stock price has delivered a positive return of ~54.22%; and it has outperformed the FTSE All-Share Energy index with a return of around 43.55% and the FTSE 100 index with a return of about 20.81%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had anticipated the normalisation of high inventory levels for 2021 due to limited growth from non-OPEC+ (Organization of the Petroleum Exporting Countries) countries. Moreover, BP had anticipated a significant recovery in oil demand during 2021 depending upon the government policies and pace of vaccinations delivery. On an optimistic note, oil prices had shown a decent growth since October 2020, driven by active supply management by OPEC+ countries and accelerated progress of vaccination rollout programmes. Also, BP expected the US gas market to benefit from the lower oil production and substantial recovery in LNG demand driven by Asian oil markets.

Moreover, the Company had anticipated Q1 FY21 reported production to remain slightly higher as compared to Q4 FY20. Also, the FY21 underlying production would be expected to remain slightly higher than FY20 levels due to the ramp-up of major projects. However, the reported production during F21 had anticipated to remain lower due to the adverse impact of the ongoing divestment program. Overall, the global oil markets would be expected to become stable during the second half of 2021.

Considering the increased production guidance for Q1 FY21, net debt reduction, good operational progress, decent financial performance, consistent dividend payments, and support from the valuation as done using the above method, we have given a “BUY” recommendation on “BP PLC” at the current price of GBX 294.65 (as on 21 April 2021 at 12:35 PM GMT), with lower-double digit upside potential based on 13.43x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*The dividend yield is subject to change as per the stock price movement.

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