BP Plc

BP PLC (BP) is a London, the United Kingdom-based British integrated oil and gas company. It is a vertically integrated company, engaged in activities such as exploration and production of oil and natural gas to generating solar energy and marketing chemicals. The company’s operations are divided into three reportable segments being Upstream, Downstream and Rosneft.

Recent News
As per the chief executive of BP, the Senegal authorities have started an investigation on offshore gas licences awarded by the government.

The license sold to the BP plc was being transacted several time to other parties. The company’s that held the original authorization made undisclosed payments to Aliou Sall, Senegal president’s Brother.

The country had been in the controversy since it had started offering licenses seven years ago. As per the report, for the share in the licences, the BP Plc had agreed to pay Timis Corp a $250 million in the year 2014 and a royalties of $10 billion over coming decades.

Responding to the report published the company’s chief said they will cooperate with the government in their investigation on the matter.

Financial Highlights – Q1 Financial Year 2019 (US$, million)

(Source: Quarterly Report, Company Website)

In the first quarter of the financial year 2019, driven by an increase in the upstream and other business & corporate segment business across the USA & Non-US except a decrease in the downstream revenue, the company’s total revenue and other income declined by 2.5 per cent to $67,407 million as compared to $ 76,885 million in the last quarter . The underlying replacement cost (RC) profit stood at $2,358 million, against $2,586 million in 1Q 2018. The group’s profit for the first quarter in the Financial Year 2019 was $2,999 million, against $2,531 million in 1Q FY18. The quarterly dividend of 10.25 cents was proposed by the company. The net debt at the end of the 1Q FY19 period stood at $45.1 billion, against $39.3 billion in 1Q FY18.

Share Price Performance

Daily Chart as at July-11-19, after the market closed (Source: Thomson Reuters)  

On 11th July 2019, BP Plc shares closed at GBX 545.80, up by 0.018 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 603.60/GBX 481.35.

Valuation Methodology


Conclusion
The company has both upstream and other business & corporate businesses, supported by well-established trading capabilities. The company expects FY19 production to be higher than 2018, thanks to new major projects as well as the contribution from BHP's assets. The wide geographic reach of its operations also helps it to diversify exposure to geopolitical events and give access to growing markets and new resources. The company is also well diversified to mitigate the impact of geopolitical events. 

Based on the above factors and supported by valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 545.80 (as on 11th July 2019) with single-digit upside potential, based on 13.50x NTM Price/Earnings multiple (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.79773 GBP.

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