The 12 September resignation of CEO Bernard Looney has cast a pall over FTSE 100 giant BP (LSE: BP). This appears to have put the brakes on a bullish price rise in its shares since 23 August.
In my experience though, only very rarely does a company suffer over the long term through the loss of a CEO. And I do not think BP will.
Instead, the resultant stalling in the share price may offer a good opportunity for me to add to my holding, for three key reasons.
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Bullish oil price
The benchmark Brent oil price is at its highest level since 17 November last year. This is also generally supportive of gas prices, as historically 70% of these derive from the price of oil.
More important for me is that the momentum shows little sign of slowing down any time soon.
Saudi Arabia announced on 5 September that its 1m barrel-per-day (B/D) production cut will continue to the end of the year. Russia said it would extend its export cuts of 300,000 B/D for the same period.
The economy of China – the world’s largest gross crude oil importer – is also showing signs of recovery.
Year-on-year, it expanded 6.3% in Q2 — significantly better than the 4.5% rise in Q1. Industrial production and retail sales figures released on 15 September were also much better than expected.
There is the risk, of course, that this bullish oil price momentum does not continue. Another risk for the share price is that lobbying by anti-oil groups may affect its operations.
Undervalued to peers
According to the price-to-earnings (P/E) ratio measurement, BP is currently significantly undervalued to its peers.
It trades at a P/E of 5.9, while Shell trades at 7.3, TotalEnergies at 8.1, and China Petroleum & Chemical at 8.6. Factoring in the outlier in the group — Brazil’s Petrobras — the peer average is 6.7.
BP is also undervalued compared to the present average 10.8 trailing P/E of the FTSE 100.
Increased shareholder rewards
Last year, the company’s total dividend was 24 cents per share, split over four payments. Based on the current exchange rate and share price of £5.25, this gives a yield of 3.5%. This is not very exciting for me, as the average FTSE 100 yield is 3.9% now.
However, the Q1 and Q2 dividend payments were 21% higher than the same payments last year. Specifically, Q1 2022’s was 5.46 cents against this year’s 6.61 cents, and Q2’s was 7.27 against this year’s 6.006 cents.
If that rise was applied to this year’s dividend, based on the current share price, the yield would be 5.5%.
Additionally positive is that BP committed to using 60% of 2023 surplus cash flow for share buybacks. It will undertake another $1.5bn buyback prior to reporting Q3 results. This is generally supportive of a company’s share price.
These three reasons are more than sufficient for me to consider adding to my BP holding. All the more so as it is trading 8% lower than it was at the start of the year.
