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 the 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
On 24th July, Wednesday, the Renault announced the extension of the partnership with BP’s Castrol for 2 more years till 2024. The Castrol will be Renault’s aftersales' oil lubricants partner effective from 1st January 2020.

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 declared 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-24-19, after the market closed (Source: Thomson Reuters)  

On 24th July 2019, BP Plc shares closed at GBX 523.50, down by 0.72 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 523.50 (as on 24^th July 2019) with single-digit upside potential based on 13.00x NTM Price/Earnings multiple (approx.) on FY19E earnings per share (approx.).
 

Associated British Foods Plc

Associated British Foods Plc (ABF) is one of the leading diversified food, ingredients and retail groups based out of the UK. The group’s major businesses include Sugar, Ingredients, Grocery, Agriculture and Retail. ABF caters its products primarily to industries including Agriculture, Pharmaceutical, Retail and Food. The group presently operates in 50 countries worldwide.

Trading Update
On constant currency basis, the company’s revenue from continuing businesses for the 40 weeks ended June 22, 2019, was up by 3 per cent versus the last year’s data for the same period, while on actual exchange rates (AER), increased by 2 per cent. On a constant currency and AER basis, the sales from continuing business (excluding sugar division) surged by 4 per cent as compared to the same period previous year data.

Financial Highlights - H1 Financial Year 2019 (£, million)

(Source: Interim Report, Company Website)
 
On a constant currency basis, the group’s revenue surged by 2 per cent to £7,532 million as against the H1 FY2018 data. Adjusted operating profit declined by 2 per cent to £639 million against the last year same period data. On AER basis, the company’s reported revenue surged by 1 per cent as compared to £7,422 million recorded in H1 FY18. Adjusted operating profit decreased by 1 per cent against the corresponding period of the last year, due to the changes in the sterling exchange rate. Adjusted Profit before tax stood at £627 million and in line against the previous year same period data. Adjusted earnings per share (EPS) were in line with the previous year at 61.1 pence. The board declared an interim dividend per share of 12.05 pence, an increase of 3 per cent as compared to 11.70 pence in H1 FY18. Gross investment and net cash stood at £433 million and £386 million, respectively.
Share Price Performance

Daily Chart as at July-24-19, after the market closed (Source: Thomson Reuters)  

On 24th July 2019, Associated British Foods Plc shares closed at GBX 2,393.00, up by 1.83 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 2,659.00/GBX 2,011.00.

Valuation Methodology


Conclusion
In the first half of the financial year 2019, the company reported decent profit growth in Primark and in Grocery division. The company expect that the full-year profit will decrease in sugar division, and it was reflected in the first half. The full-year 2019 prospects for the company was unchanged, with adjusted earnings per share projected to be in line with the previous year.

The company expects its Primark division’s profits will see marginal reduction in the H2 of the financial year due to a strong US dollar on purchases. Going forward, in April there was one potential positive catalyst for the share, Primark Birmingham flagship store opened on April 10 - 160k square feet store.

Based on the above rationale and the valuation done using the above method, we have given a “HOLD” recommendation at the closing price of GBX 2,393 (as on 24th July 2019) based on 18.00x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.80141 GBP.

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