It’s been a tumultuous time for the BP (LSE: BP) share price. So what’s new?
Ever since the Deepwater Horizon tragedy in 2010, BP’s lurched from crisis to crisis. Oil price volatility, the pandemic, the energy shock and a wobbly green transition have given the board – and investors – a bumpy ride.
Most recently, BP’s been making a sharp pivot back to fossil fuels, a move that some investors will cheer as a return to its core business. Others worry it’s another misstep in a decade-long identity crisis.
CEO Murray Auchincloss is doubling down on cost-cutting and efficiency, promising to “fundamentally reset” BP’s strategy. But does that mean better returns for shareholders?
Can this FTSE 100 giant regain its throne?
BP’s share price is up 17% in the last three months, but still down 10% over the past year. That’s reflects weaker oil prices, but also a company that’s lost its way.
BP’s been squeezed between green activists who think it’s not doing enough on renewables and activist investors who think it’s doing too much. Now it’s made its choice.
The board’s cutting back on green projects, reallocating capital to higher-returning oil and gas businesses, and ramping up efficiency. It’s also targeting $20bn in asset sales and reducing its net debt from $23bn to between $14bn and $18bn by 2027.
But is the board merely flip-flopping between strategies, risking ending up with stranded fossil fuel assets in a rapidly changing energy market?
Auchincloss doesn’t really seem to be on top of events, more buffeted by wider forces. With activist investor Elliott hovering impatiently, he needs to get his game face on. No second chances here.
So what does the market think of his prospects? The 27 analysts covering BP shares have a median 12-month price target of just over 492p, suggesting a potential 11% upside from today’s 444p.
It’s not exactly a rip-roaring vote of confidence.
At least investors receive dividends while they wait for BP to sort itself out. The yield’s forecast to hit 5.69% this year and 5.93% in 2026.
Dividends and buybacks too
Share buybacks continue, but the pace is slowing as earnings fall. Subject to board approval, BP expects to pay between $750m and $1bn in Q1 2024. That’s down from $1.75bn in the previous quarter.
I actually bought BP shares recently. At the time, the price-to-earnings (P/E) ratio was around six. An unmissable bargain, I thought. Soon after, BP’s earnings per share plunged 97% in full-year 2024, and suddenly that P/E ratio soared to over 240 times.
I’ve made a modest gain so far and got my latest dividend Friday (28 March), which I’ll automatically reinvest. I’m sticking with BP, and I can understand why investors would consider buying the shares today, despite that P/E shock.
Investors must treat BP as a pure fossil fuel play. It didn’t build a convincing renewables business when it was noisily committing to doing so, and certainly won’t bother now. At least it’s back on home ground.
Investors considering the stock can take their own view on that. For now, I’m holding, but I’m not impressed.
