Shell hints at UK exit: will the BP share price take a hit?

I’m checking the pulse of the BP share price after UK markets reeled recently at the mere thought of FTSE 100 darling Shell leaving for the US.

| More on:
Two white male workmen working on site at an oil rig

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The BP (LSE:BP) share price continues to perform well this year, having reclaimed much of its Covid losses over the past four years. In fact, it’s climbed from a low of £1.96 in late 2020 to £5.12 today. 

That’s an annualised return of almost 32% per year.

I can’t think of many other FTSE 100 stocks with that kind of return (except maybe Rolls-Royce, with an incredible 95% annualised return in the same period!)

How’s the wider industry looking?

Let’s be honest, oil companies haven’t had the best of luck lately. From climate protests and zero-emission targets to supply issues and conflicts in the Middle East, a lot is going against them. Both Shell and BP have been battling with strict EU regulations pushing for renewable energy adoption. 

So much so that Shell is considering a move to the US, where CEO Wael Sawan last year enjoyed a warm reception at the New York Stock Exchange (NYSE). While it’s unlikely that BP would follow suit should that happen, it has sent shivers through the UK market. BP is down 2.43% since Sawan reiterated last week that he is “open to all options” to improve Shell’s prospects.

Renewable transition goals

BP does perform somewhat better than Shell on its environmental, social and governance (ESG) score. It aims to reduce its carbon output by 15-20% by 2030, with a goal of net zero by 2050. It’s also pledged to invest $6bn-$8bn into transitioning to renewables by 2025, increasing that number to $7bn-$9bn by 2030.

On the governance side, I personally feel that £8m a year compensation is a bit high for newly-appointed CEO Murray Auchincloss – particularly since earnings have declined since he took office in January this year. It doesn’t exactly reinforce the belief that the company is fully focused on its environmental goals.

What do the number crunchers think?

Brokers offer a mix of opinions on BP, with a hold from Berenberg and an underweight rating from JPMorgan. But analysts from both RBC Capital and Jefferies recently reiterated their buy rating for BP, with targets of £6 and £5.70, respectively. A quick browse on various other analysis sites and I can see similar targets – overall, sentiment seems good.

But while the price has been increasing steadily, there’s no guarantee that will continue. Fortunately, BP has a relatively good dividend yield of 4.39%, so even without price growth, there’s value in the stock. The quarterly payments have been reliable and consistent for the past 10 years, although they were reduced by around 50% when Covid hit.

So what’s the bottom line?

I’ve recently been considering restructuring more of my portfolio towards BP following the worrying news from Shell. While I do feel Shell deserves better prospects, I don’t think a move to the US is the solution.

I’m not 100% sold on BP’s future prospects either, but I like the dividend yield. I also feel fairly confident that the price has more chance of growing than falling. I wouldn’t buy more of the shares right now but I’m happy to hold the ones I have.

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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Mark Hartley has positions in Bp P.l.c., Rolls-Royce Plc, and Shell Plc. The Motley Fool UK has recommended Rolls-Royce Plc. 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.

More on Investing Articles

Investing Articles

Are Rolls-Royce shares good for passive income?

Our writer is getting mixed messages about the Rolls-Royce dividend. But whatever happens, he thinks passive income hunters will be…

Read more »

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »