Lower oil prices will remain the dominant theme in BP’s full-year earnings. This should surprise no one, and the key to the performance of the shares on results day will be the outlook for the coming year. Investors would like to think the worst is behind them, and while oil prices remain a long way from the highs of 2011/2012, the hope is the price has finally stabilised.
The shares have done well since the lows of 310p in February, helped by a substantial rally in crude oil, a revival of bullish sentiment and a bonfire of short positions that has carried many previously unloved shares to new highs for the year.
Even now, BP trades on a forward earnings multiple of 28 times, based on earnings of 17 cents per share in 2017. This would seem to be rather overambitious, to say the least. The shares currently trade on a yield of 7%, well above the market average, which implies that we will see little in the way of dividend growth, and even a cut to a payout in the future should the company look to reduce costs.
Analysts expect the firm to post a loss of 10 cents per share for its first quarter. This would be a marked drop from earnings of 85 cents per share for the same period a year ago. Meanwhile, revenues are expected to drop by 26% from the first three months of 2015. Upstream earnings, i.e. those that involve oil and gas exploration and production, are expected to be under extreme pressure given the fall in oil prices. Downstream earnings, which covers refining, is likely to be slightly better, but even here the overall universe of excess production and low prices will make its presence felt.