CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.

BP is being battered

BP will report its third-quarter results on 27 October, and the weak oil price is still keeping the stock under pressure.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
BP
Source: Bloomberg

BP’s share has been beaten up by the collapse in the price of oil and, despite cost cutting measures and postponing of capital expansion, it hasn’t been enough to negate the downward trend the share price has been in. Revenue fell in the first-half of the year and the upstream business had a dreadful performance, and the downstream unit had a large jump in profit but it wasn’t enough to register a first-half profit for the group. As I previously stated, when oil prices are low, major oil companies depend on the downstream unit to make up for the exploration and drilling business, and it is worrying that BP’s second-quarter wasn’t as good as its first.

The oil titan is likely to keep capital expenditure on hold, and another round of cost cutting could be on the cards, but while oil trades in the $50 region dealers will have a negative outlook for the stock. The company’s net ration rose from 15.5% to 18% – granted this is within its own target range of 10%-20% – it might become a problem if the energy market stays subdued.

When BP reveals its third-quarter figures, the market is anticipating revenue of $49.39 billion and adjusted net income of $1.3 billion, which compares with the second-quarter revenues and adjusted net income of $60.64 billion and $1.31 billion respectively. BP will post its full-year profits in February 2016, and analysts are expecting revenue of $224 billion and adjusted net income of $6.48 billion, and these forecasts equate to a 36% fall in revenue, and a 47% fall in adjusted net income.

Equity analysts are bullish on BP, and out of the 36 ratings, 12 are buys, 18 are holds, and six are sells. The average target price is 399p, which is fractionally higher than the current price. Investment banks are more bullish on Royal Dutch Shell, and out of the 19 ratings, 11 are buys, six are holds, and two are sells. The average target price is £20.19, which is 12% above the current price.

BP’s share price has been falling since June 2014 and even though it has bounced back recently the bias is to the downside, and 320p is the target. Should the recent rally continue the stock will encounter resistance at 413p.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.