Is it a good time to buy BP shares?

In light of significant changes to the leadership team causing uncertainty, our writer explores whether now would be a wise time to buy BP shares.

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In the world of business and finance news, BP (LSE:BP.) has been dominating the headlines. At the end of September, the group announced that its top executive in the US is leaving the company.

The news came just weeks after the resignation of BP’s global chief executive, Bernard Looney.

After rising steadily throughout the month, the oil supermajor’s share price plummeted by around 7%. Consequently, its shares currently trade at around the 500p mark.

So, given significant changes in the leadership team causing a degree of concern, is now a good time to buy BP shares?

The short-term uncertainty

First and foremost, the departure of key executives at any company usually prompts a period of uncertainty. This is often reflected in the company’s share price as the market grapples to asses the potential impact on the company’s strategic direction and financial performance.

In this case, BP is no different. The market is likely closely watching for the company’s response, expecting clear communication and decisive actions from the new leadership.

But this mostly impacts the short term. In the long run, I’m more concerned about whether the company can navigate the leadership transitions effectively. In so doing, investors are reassured and the organisation’s ability to adapt and thrive under new leadership is demonstrated.

Capable interim leadership

Dave Lawler became chair and president of BP America back in July 2020. He’s being replaced by Orlando Alvarez, who joined the company in 1996. Alvarez will also continue in his role as senior vice-president gas and power trading.

After the abrupt departure of Looney, it was announced he would be replaced by the group’s chief financial officer, Murray Auchincloss. Unlike with Alvarez, this replacement is on an interim basis.

Looney’s exit is undoubtedly a loss for the group. After all, his leadership positioned BP to simultaneously be a leader in the traditional and transition energy space despite tough business conditions.

But emphasising the strength of new and interim leadership is crucial during times of executive transition. And I’m reassured by the fact that both Alvarez and Auchincloss posses a wealth of BP knowledge and experience.

As a result, while it might take a bit of time to get going, I’m convinced that the long-term impact of the recent changes on business performance won’t be too detrimental.

A bright long-term outlook

Speaking of business performance, BP is in a robust financial position. Granted lower oil prices in the first half of 2023 will have impacted cash flows, but the recent rebound in prices is likely to bring improvements.

Importantly, capital investment plans look well covered, which leaves room to increase dividends modestly and continue buying back shares. In fact, assuming an oil price of $60 per barrel (which is some way below the current price), analysts at Hargreaves Lansdown point out that BP should have the capacity to grow dividends by around 4% this year.

Ultimately, with the group’s current valuation some way below the long-term average, I reckon now could be a good time for me to buy BP shares provided I was willing to stomach a substantial amount of uncertainty and volatility in the near term.

However, since I’ve not got any cash to spare, I’ll have to watch on from the sidelines for now.

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. Consider taking independent financial advice.

Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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