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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.