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.

Financial Highlights - 1Q FY2019 (US$, million)

(Source: Quarterly Report, Company Website)

In 1Q 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% to $67,407 million as compared to the last year data. The underlying replacement cost (RC) profit stood at $2,358 million, against $2,586 million in 1Q 2018. The group’s profit for the 1Q FY19 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 June-05-19, after the market closed (Source: Thomson Reuters)  

On 5th June 2019, BPPlcshares closed at GBX 537.60, down by 1.28 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 bothupstream and other business & corporate businesses, supported by well-established trading capabilities. The companyexpects FY19 production to be higher than 2018, thanks to new major projects as well as the contribution from BHP's assets. Thewide geographic reach of its operations also helps it todiversify exposure to geopolitical events and give access to growing markets and new resources.
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 537.60 (as on 5th June 2019) with high single-digit upside potential based on 5.56x NTM Price/Cash Flow multiple (approx.) on FY19E cash flow per share (approx.).
 

Lloyds Banking Group Plc

Lloyds Banking Group Plc (LLOY) is a London based lender and offers wide variety of banking and non-banking services predominantly in the UK. The group offer services related to current and savings accounts, short and long-term loans, credit and debit cards, unsecured loans, investment products, mortgages, motor finance, protection, bonds and syndicated loans. The company's operations are differentiated in four operating segments being Commercial Banking segment, Insurance segment, Retail segment, and Consumer Finance segment.

Financial Highlights – Q1 FY2019 (Underlying Basis £, million)

(Source: Quarterly Report, Company Website)
 
The group’s net interest income declined by 3 per cent to £3,083 million as compared to £3,171 million in Q1 FY18, due to a decrease in interest margin (net) and average interest-generating assets. Total net income was up by 2 per cent to £4,420 million against the £4,330 million in Q1 FY18, reflecting the higher other income and decrease in operating lease depreciation. 

Total cost stood at £1,977 million, a decrease of 4 per cent against the same period of last year. The total cost declined because of a decrease in the operating costs and remediation charges. The company’s underlying profit surged by 8 per cent to £2,168 million as compared with the Q1 FY18 data of £2,004 million, due to higher net income and decreased operating costs. 

Statutory PBT (profit before tax) stood at £1,603 million and remained flat against the last year. Statutory PAT (profit after tax) stood at £1,200 million, an increase of 2 per cent as compared with the Q1 FY18 data. Earnings per share surged by 2 per cent to 1.49 pence in Q1 FY2019 from 1.47 pence in Q1 FY2018.

Share Price Performance

Daily Chart as at June-05-19, after the market closed (Source: Thomson Reuters)  

On 5th June 2019, LloydsBanking Group Plcshares closed at GBX 57.81, down by 0.14 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 67.90/GBX 49.52.

Valuation Methodology


Conclusion
The company has shown good financial performance in the current quarter. The rising interest rate can help the company to improve its margins but can decrease the demand for loan. FY19 guidance of net interest margin at 290bps is unchanged but indicates that NIM is unlikely to rise in coming quarters. Operating cost will remain below £8 billion and net asset quality ratio will remain below 30 basis points. The company is on track to deliver capital generation in line with its target of 170-200bps per annum. There is strong support from the macroeconomic factors like improving employment rate and continuous improvement in GDP.
 
Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 57.81 (as on June-05-19) with high single-digit upside potential based on 4.60x NTM Price/Cash flow (approx.) on FY19E cash flow per share (approx.).
 
 
*All forecasted figures and peer have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.78676 GBP.

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