BP Plc

BP Plc (LON: BP.) is into the international energy business based out of the United Kingdom with a diverse portfolio across businesses, resource types and geographies, and operations across 78 countries worldwide.

Financial Highlights – Financial year 2019 (31st December 2019, USD, million)

(Source: Quarterly Report, Company Website)
 
During the fiscal year 2019, the company’s underlying replacement cost (RC) profit was $9,990 million as compared to $12,723 million in the fiscal year 2018 due to the impact of the weaker environment. In the fourth quarter, underlying RC profit was $2,567 million as compared to $3,477 million in the Q4 FY2018. In Q4 FY2019, the Reported profit was $19 million and $4.0 billion for the full year. The company’s full-year operating cash flow was $28.2 billion. The group’s capital expenditure was $15.2 billion for the full year. BP has completed its share buyback programme in January 2020. The company’s net debt has reduced by $1.1 billion in the fourth quarter. The company declared a dividend of 10.5 cents per share for the quarter, an increase of 2.4 per cent year on year.
 
Share Price Performance

Daily Chart as of March 3^rd, 2020, before the market close (Source: Thomson Reuters)

BP Plc shares were trading at GBX 418.72 at the time of writing before the market close (at 9:08 AM GMT) on 3^rd March 2020 and up by 1.82% versus the previous day closing price. Stock's 52 weeks High is GBX 583.41 and Low is GBX 385.25.

From the technical standpoint, 3 days, 9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

*Peers: Tullow Oil Plc, Petrofac Ltd, Cairn Energy Plc, John Wood Group Plc and TechnipFMC Plc. *Currency Conversion for 1USD: 0.7818 GBP

Valuation Metrics

(Source: LSE)
 
As on 31st January 2020, the Price to Earnings and EV to EBITDA multiples of the BP Plc’swerelower as compared with the Oil & Gas Producers industry which shows that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The group is well mitigated against any downside risk in any one region or commodity, as the group owns and operates assets in a wide range of commodities across many countries, offering the group a much-needed diversity. By lowering costs through deploying new technologies and deploying rigorous cost minimising programs, the company seeks to maximise output from its portfolio in an efficient way.

Conclusion
In the fourth quarter of 2019, the company faced a challenging environment, which impacted the group’s financial performance. During the current period, the net debt reduced by $1.1 billion. With the receipt of disposal proceeds and growing free cash flow, the company would continue to deliver decent business performance in the near term. The diversity in operations and strong industry connections support the future growth of the company with strong fundamentals. By lowering costs through deploying new technologies and deploying rigorous cost minimising programs, the company seeks to maximise output from its portfolio in an efficient way.

 
The company’s total revenue has grown from $183,008 million in FY2016 to $278,397 million in FY2019, giving approximately 15.01 per cent growth on a CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Buy” recommendation at the closing price of GBX 411.25 (as on 2^nd March 2020) with single-digit upside potential based on 11.20x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Investec Plc

Investec Plc (LON: INVP) is a specialist bank and asset manager group. It offers a range of financial products and services to a selective client base.

Financial Highlights – H1 Financial Year 2020 (30th September 2019, GBP, million)
For the first half of the financial year 2020, the company’s adjusted operating profit decreased by 1.7 per cent to £373.6 million as compared with the corresponding period of the last year. The adjusted basic earnings per share declined by 4 per cent (down 2.7 per cent at neutral currency) to 28.9 pence in H1 FY20 against the 30.1 pence in H1 FY2019, while basic earnings per share were reported at 24.7 pence for the period. Asset Management generated robust net inflows of £3.2 billion, which, together with reassuring markets, increased adjusted operating profit by 6.3 per cent and increased average assets under management (AUM). On 30th September 2019, the third-party assets under management rose by 6.4 per cent to £177.9 billion as compared to the previous period (March 2019: £167.2 billion), while on a neutral currency basis, it was up by 6.2 per cent. 

Share Price Performance

Daily Chart as of March 3^rd, 2020, before the market close (Source: Thomson Reuters)

Investec Plc shares were trading at GBX 395.20 at the time of writing before the market close (at 10:28 AM GMT) on 3^rd March 2020 and up by 2.49% versus the previous day closing price. Stock's 52 weeks High is GBX 523.60 and Low is GBX 376.70.

From the technical standpoint,9 days, 14 days and 30 days relative strength index of the stock was favourable, and prices could rise further from the current trading level.

Valuation Methodology

*Peers: FirstRand Ltd, Rmb Holdings Ltd, Standard Bank Group Ltd, Absa Group Ltd and KCB Group Plc.


Valuation Metrics
 

(Source: LSE)
 
As on 31st January 2020, the Price to Earnings and EV to EBITDA multiples of the Investec Plc’s were lower as compared with the Financial Services industry which shows that the company is trading at a lower multiple as compared to its peers.

Growth Catalysts
The group is looking forward to growing organically with its deep and growing client franchises, differentiated propositions to private and corporate clients and lower leverage with strong liquidity.

Conclusion
The company plans to conclude the demerger of the Asset Management business, i.e. IAM and deliver the benefits of focus and simplicity. The customer franchise businesses have made strong growth as evidenced by robust net inflows and progress in assets under management, customer deposits, and loan book. For the financial year 2022, the Wealth and Bank division stay fully committed to delivering its targets. This growth is driven by the long track record of increasing AUM and continued revenue growth.

The company’s net income has grown from GBP 245.5 million in FY2015 to GBP 531.1 million in FY2019, giving approximately 21.28 per cent growth on a CAGR basis.

Based on the decent prospects, and supported by valuation done using the above method, we have given a “BUY” recommendation at the closing price of GBX 385.60 (as on 2^nd March 2020) with single digit-upside potential based on 7.44x NTM Price/earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Buy” recommendation is also valid for the current price as covered in the report (as on 3^rd March 2020).

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