BP PLC

BP PLC is an FTSE 100-listed 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.

BP. will pay a quarterly dividend of 5.46 US cents per share attributable for Q2 FY21 on 24 September 2021, while the ex-dividend date was 12 August 2021.

Investment Rationale for Valuation – SELL at GBX 318.47

• Due to the shortage of truck drivers, the Company had temporarily closed several UK fuel stations.
• On the profitability front, all major profitability metrics like operating margin, EBITDA margin and the net margin remained lower than the respective industry median during Q2 FY21.
• The Group production got reduced by around 11.3% during H1 FY21 as compared to H1 FY20.
• From a technical standpoint, BP. is trading around the upper Bollinger band, indicating a correction in the stock price.
• Moreover, the 14-days RSI of ~64.35 is approaching overbought territory, indicating a correction in the stock price.

Key Risks

• The top-line business of BP might get impacted by oil & gas price fluctuations, exchange rate fluctuation and a general macroeconomic outlook.
• The unfavourable climate change could adversely affect the operations.
• Bank of England had downgraded the GDP forecast and raised the inflation outlook.

Q2 FY21 Financial Highlights (for the three months period ended 30 June 2021, as on 03 August 2021)

 (Source: LSE website)

• BP. had managed to reduce the capital expenditure to USD 2.51 billion during Q2 FY21 when compared with Q1 FY21.
• With regards to the balance sheet, the Company had marginally reduced the net debt from USD 33.31 billion as of 31 March 2021 to USD 32.71 billion as of 30 June 2021.
• The divestment & other proceeds contributed around USD 215 million during Q2 FY21.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group) 

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

Conclusion

The Company had made significant financial progress during Q2 FY21 with net debt reduction and decent growth in interim dividend. Furthermore, BP. would execute a share buyback program worth approximately USD 1.40 billion, benefitted by cash surplus made during H1 2021. Meanwhile, the Company would accelerate strategic progress with four major projects in solar & convenience. However, BP. reported a decline in the operational cash flow during Q2 FY21. Thus, it would be prudent to exit the position and book profit at the current levels. The stock made a 52-week low and high of GBX 188.52 and GBX 361.72, respectively. 

Based on the reduced production during H1 FY21, the recent closure of fuel stations in the UK and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on BP PLC at the current market price of GBX 318.47 (as on 24 September 2021 at 10:12 AM GMT+1), while we will suggest reinvesting once we identify fresh growth catalysts for the Company.

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

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