BP has overcome the biggest setback in its history
to put itself in a position to reward shareholders
with strong fundamental growth once more, says
The Share Centre’s Graham Spooner.
The oil giant lost 53 per cent of its value in the two
months that followed the Macondo disaster. The
Deepwater Horizon explosion caused the largest
spill in the petroleum industry’s history but
Spooner believes that recent moves by BP’s
management should secure its future.
"BP is still in the realms of transforming itself from
the company it was prior to the Gulf of Mexico oil
spill," he said. "It plans to sell off more low-
returning assets and invest in those which have
higher growth opportunities. Growth seekers will
be pleased to hear the company plans to invest
$45bn in future projects."
The stock has been out of favour among much of
the industry following two tumultuous years that
saw it cut its dividend and put it in the firing line
of US politicians.
However, it has been a long-time favourite of M&G
Recovery's Tom Dobell. The FE Alpha Manager
believes the company, which was built to be
profitable when oil is just $60 a barrel, believes the
road to recovery can still be a profitable one,
provided the management can resolve the legal
issues and avoid becoming a target of competitors.
Speaking to FE Trustnet last month he said: "The
valuation of the business should imply a share price
greatly higher than it is at now and unless the
management gets its act together reasonably quickly,
it is going to become lunch for somebody else in the
Spooner claims that BP has now staved off this threat
with a series of major upgrades that have all boosted
the share price.
"2011 was a year of consolidation for BP and it has
now set itself on a recovery trajectory," he said.
"Dividends have been reinstated and between now
and 2014 it expects to return to production in the
Gulf of Mexico.“
"It also aims year of consolidation for BP and
"2011 was a to continue growth of downstream
operations set itself on a recoveryimprove the
it has now earnings momentum, trajectory,"
margin mix of the portfolio, reduce uncertainties
he said. "Dividends have been reinstated and
on the Gulf of Mexico it expects upgrade the
between now and 2014 liabilities, to return to
Whiting refinery and complete 15 major upstream
production in the Gulf of Mexico."
projects. Should these projects succeed, operating
also aims to continue growth of
"It flow could improve by 50 per cent."
Data from FE Analytics shows that momentum,
downstream operations earnings the stock has
improve the margin mix of thethe last 18
lost more than 13 per cent over portfolio,
reduce uncertaintiesstruggled to gainof foothold
months. BP has so far on the Gulf a Mexico
as uncertainty over the Whiting dominates its
liabilities, upgrade its future still refinery and
complete 15 major upstream projects. Should
However, Spooner believes BP's recent decision to
these projects succeed, operating cash flow
could 50 per cent per cent."
sell itsimprove by 50 stake in TNK-BP, the joint
venture withFE Analytics shows thatconsortium
Data from Alfa Access Renova and a the stock
of Russian billionaires, is likely to pave the way for
has lost more than 13 per cent over the last
some serious investment in the business.
BP has so far struggled to 30 per
18 months. significant asset; it represents gain a
"TNK-BP is a
cent of BP’s total production and its future still
foothold as uncertainty over paid out $3.75bn
dominates itsto BP in 2011, compared to the
in dividends valuation.
$4.1bn BP paid out to its shareholders."
"The cash generated from the sale would have
many uses; it could either be returned to
shareholders or used to pay off debts or held back
for other projects. The new business should then
be smaller but more streamlined, allowing it to
focus on recovery from the Gulf of Mexico
He added: "We believe that BP will achieve the
much needed turnaround and should achieve a
fair price for TNK-BP. With the recent pull-back in
the share price, there is now more value to be had
for long-term investors and we are therefore
upgrading our recommendation to a ‘buy’."
Our data shows that 385 of the 3,186 funds in the
open-ended universe – or 12 per cent – list BP in
their top-10 holdings.