Are Investors Undervaluing BP BP Right Now?

The exit of Rosneft at a time of collapsing prices for Russian assets resulted in a $24.0B charge to BP’s first-quarter results. On top of that, BP had $1.5B in pre-tax accounting charges, including a $1.0B charge for the impairment of the carrying value of BP’s business with Rosneft and a $0.5B charge related to foreign exchange losses. Those impairments were the key reason behind BP’s $20.4B loss in the first-quarter, despite strong execution in the production business. It has a clear focus to decarbonize, but if the world slows down its transition to net zero due to energy security concerns, given the Russia situation, then BP reliable hydrocarbon business will be valued more.

The stock of BP has collapsed near its 25-year lows for various reasons. The pandemic is certainly the primary factor but not only for its impact on the demand for oil products. This shift has caused great uncertainty over the future prospects of BP and thus it has taken its toll on the stock of the oil major.

BP PLC ADR outperforms competitors despite losses on the day

The smaller target is a result of a significant drop in operating cash flow to $7.6 billion during the quarter from $13.5 billion in the final quarter of 2022. Paul Summers picks out three penny stocks that could prove excellent medium-to-long-term picks for risk-tolerant Fools. A mismatch between supply and demand was already causing prices to rise at the beginning of the year, before the war in Ukraine added fuel to the fire.

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Mending the balance sheet is another one of its key goals today, along with completely reshaping the company. When you step back, there’s a lot going on here and it’s all happening at the same time. Reuters, the news and media division of Thomson Reuters, is the world’s https://investmentsanalysis.info/ largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world’s media organizations, industry events and directly to consumers.

To put this number into perspective, the organisation spent $4.7bn on gas and low-carbon projects last year. Based on these numbers, the firm’s gearing ratio has fallen to 25.3%. This puts the enterprise in an incredibly strong position to fund further capital spending and cash returns to investors. It also limits its exposure to rising interest rates, which could be a headache for many companies in the years ahead. But that decade includes a point when oil prices were well over $100 per barrel. While the company’s ROCE was much higher in then than it is in today’s low-oil-price environment, it was still an industry laggard on this metric.

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BP said it expects oil and European gas prices to remain strong in the second quarter even as refining profit margins are expected to weaken due to lower diesel prices. The lower share buyback «will more than offset the good operational performance as BP is the first Bitcoin cfd international oil company…to cut buybacks this quarter,» Jefferies analysts said in a note. Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed.

BP and its peers are also having to invest large sums of money in developing green energy projects. These projects are not going to produce returns immediately, and could prove to be a drag on profits for years to come, only adding to the uncertainty for these enterprises. Still, at face value, the stock does not seem to reflect the company’s improving trading performance.

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One risk the market may be overly worried about is the prospect of windfall taxes on the oil majors, so governments can score cheap political points and reduce budget deficits. The thing we must remember is that governments need companies like BP to supply energy and provide that security, so my view is that extreme windfall taxes are unlikely. In the UK the windfall tax has been offset by tax credits on new investment, which BP is taking advantage of, which secures future growth, and reduces the tax burden. Indeed, the respected International Energy Agency forecasts that global oil demand will increase between now and 2030. This should spur BP’s financial performance at a time when energy industry capital expenditure will be biased towards renewables and away from oil and gas exploration.

That’s obviously because of high oil and gas prices, so is it too late to get in? For some energy stocks maybe, especially if their long term strategy is not aligned towards the energy transition. BP laid out its energy transition strategy – from integrated oil company to integrated energy company – more than two and a half years ago. This is being executed and means that, over time, BP will be less exposed to oil prices.

BP’s strong cash flow is giving it dry powder to speed up its net-zero carbon pace and align itself with strong ESG credentials. It’s cash conversion ratio (at December 2021 year-end) of 131% is also helping. One example is the recent acquisition of American renewable natural gas producer, Archaea Energy, for $3.3 billion in cash. It also completed the acquisition of a 40.5% stake in one of the world’s largest renewables and green hydrogen energy hub projects in Q3. BP’s recent financial performance has been supported by higher energy prices, which climbed to over $120 a barrel earlier this year and currently Brent, the international benchmark trades at $93/barrel at time of writing.

• At the same time, the company will benefit from the soaring demand during summer, even as prices at the pump remain elevated.
• As of August 15th, there was short interest totaling 4,820,000 shares, an increase of 9.0% from the July 31st total of 4,420,000 shares.
• BP will still exceed its goal of using 60% of surplus cash to buy its own shares, but investors were disappointed and its forecast for lower oil and gas production in the second quarter also weighed on investor sentiment.
• What followed has to be one of the biggest ever U-turns in global energy policy.

I also believe the market is overlooking the company’s strong balance sheet. Rupert Hargreaves explains why he thinks the BP share price is deeply undervalued considering these five tailwinds driving growth. Turning to the four-hour chart, we see that the BP stock price has come under intense pressure in the past few weeks. The stock has managed to drop below important support levels at 410p and 371p. It has also crashed below the 25-day and 50-day moving averages. It announced that it reduced its net debt to over $27.5 billion even as it added its share buyback by $2.5 billion.