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BP full-year results – how will they affect the share price?

BP has seen its shares struggle in 2019, but with strong cash flow and an attractive valuation, will this change in 2020?

BP share price Source: BP

When is BP’s earnings date?

BP reports Q4 and full-year earnings on 4 February.

BP earnings – what does the City expect?

BP is expected to report pre-tax profit of $15.06 billion, down from the $20.9 billion a year earlier. Revenue is expected to fall 7% to $277.8 billion.

Despite a year of volatility, which saw US crude hit $65.00 twice, oil prices are close to where they were a year earlier. But even with oil failing to hold its gains, BP has been able to report strong growth in profits, boosting investor confidence, while at the same time maintaining its dividend and even embarking on a $1.6 billion share buyback scheme.

While leverage at the group will remain relatively elevated (net debt in Q3 was above forecasts), BP is using the funds to power expansion in a number of projects which will help provide diversification in the years to come. Crucially, cash flow remains healthy, providing little concern about debt repayments, and thus leaves room for further dividend increases and buyback programmes.

How to trade BP’s earnings

BP trades at 11.5 times forecast earnings, a figure that has changed little since late 2018. This is well below the five year average of 15 times, with BP having remained ‘cheap’ on this basis for almost two years. Combined with a 6.5% yield, BP would appear to have compelling attractions for both income investors and those looking for growth ‘at a reasonable price’.

Meanwhile, for technical traders, the 14-day average true range of BP shares has fallen since November, from 10.5 to around eight. This reduction in intraday volatility may allow for tighter stop losses and larger position sizes, provided risk management is carefully employed.

The average move on results day is 2.95%, while current options pricing points to a move of 3%. It is worth noting that the shares fell 4.3% on the release of Q3 results on 29 October.

BP shares – technical analysis

BP rallied steadily from the beginning of 2016, but the charge higher stalled in 2019. Since mid-2018, the 550p area has marked resistance. More worryingly for bullish investors is the sequence of lower highs and lower lows in place since April last year – each rally in BP has petered out at a lower level, building a bearish dynamic that has proven hard to shift. The one consolation is that the 460p level continues to hold as support – it was tested in December 2018 and then again almost a year later.

It is possible that the share price has created a higher low at 475p in January 2020, but we will need to see the sequence of lower highs breached to provide a more bullish view – thus the shares need to move back above 510p. A break of 460p would be worrying and could bring 420p into play, lows last tested in Q1 2018.

Arguably, BP shares have been in a two-year consolidation period after their two-year rally. However, we have yet to see this consolidation end, so the time is not yet ripe for outright bullishness.

BP share price Source: ProRealTime
BP share price Source: ProRealTime

BP gets two stars out of three

BP possesses an attractive dividend and a compelling valuation, founded upon solid cashflow. This will be enough to convince many fundamental investors, but those looking at charts will want to see the third piece of the puzzle, a revived uptrend, fall into place. This may happen this year, but the run of lower highs needs to be brought to an end first.

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