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BP hurt by falling oil

BP’s share price has taken a knock as the slump in the oil market is weighing on the stock.

BP
Source: Bloomberg

BP will announce its fourth-quarter figures on 2 February, and traders are expecting revenue of $43.2 billion and adjusted net income of $719 million. That compares with the third-quarter revenue of $54.7 billion and adjusted net income of $1.81 billion.

The firm will announce its full-year results on the same date, and investors are anticipating revenue of $214 and adjusted net income of $6.5 billion. These forecasts equate to a 39% fall in revenue and a 46% decline in adjusted net income.

The company is suffering at the hands of weak oil prices, and profits are falling. The slump in energy market is forcing BP to trim its costs and cut back on capital expenditure. Additional sales of assets is in the pipeline as the firm wants to beef up its balance sheet.

The downstream division is greatly benefitting from the collapse in the price of oil, and the refining business acts as an internal hedge against falling energy prices. BP’s dividend is safe for now and the company will have the cash to pay dividends until the end of 2017, providing oil is trading at approximately $60.

The bulk of the group revenue comes from the exploration side of the organisation, and seeing as the oil market is showing no signs of a recovery the outlook for BP will stay negative. 

Attractive dividend

 

Trailing 12M Price/Earnings

Forward 12M Price/Earnings

Price/Book Value

Dividend Yield

5 Year Dividend Growth

BP

N/A

21.61

0.85

8.83%

24.9%

Royal Dutch Shell B

73.31

13.57

0.72

9.51%

2.72%

Tullow Oil

N/A

N/A

0.41

0%

0%

Cairn Energy

N/A

N/A

0.43

0%

0%

FTSE 100

25.51

14.24

1.62

4.64%

N/A

 

BP is undervalued judging on the price/book value, but its rivals are even more so. The forward-looking price/earnings ratio for BP is the healthiest of the group, and earnings at Royal Dutch Shell are expected to fall, while Tullow Oil and Cairn Energy are making losses.

BP has a very high dividend yield when compared with the broader market, but also in comparison with its competitors, especially when smaller companies like Tullow Oil and Cairn Energy are not paying out to shareholders at the moment. The dividend growth rate is exceptional for its sector. 

Banks are bullish

 

Buy Rating

Hold Rating

Sell Rating

BP

12

17

5

Royal Dutch Shell B

10

7

1

Tullow Oil

19

8

3

Cairn Energy

13

9

2

 

Equity analysts are bullish on BP, but it still has the lowest percentage of buy ratings and the highest percentage of sell ratings associated with it. Investment banks have a 401p price target for BP, which is 20% above the current price. 

BP’s share price has dropped by 37% since June 2014 (which coincided with the spike in oil) and, with the exclusion of the first four months of 2015, the trend has been pointing lower. The stock has been stuck in the range of 366p to 320p since early December and a breakout of the area will be an indicator of its next move.

A close below 320p will bring the support at 296p (June 2010) into sight. Should we see a close above 366p, the trendline resistance will come into play at 384p, and the next stumbling block will be the 200-day simple moving average at 395p. 

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