It’s been a terrific 12 months for the BP (LSE: BP) share price. The FTSE 100 oil and gas giant has rocketed 50% in that time, with dividends on top. That’s far better than I ever imagined when I bought the stock a couple of years ago. At the time, I wasn’t entirely convinced by the investment case at all.
I was worried about its awkward transition away from fossil fuels (and back again), and the impact of the climate debate. But I was also drawn by the dividend, which was above 6% at the time, and the low valuation. So what does the next year hold?
Right now, it’s hard to look past the war with Iran. That’s dominating the headlines, and investor sentiment towards BP. When Donald Trump declared the crucial Strait of Hormuz open on Friday (17 April), markets soared but BP shares moved the other way along with the oil price.
Can it smash the FTSE 100 again?
In the short term, BP looks like a pure play on Middle East turmoil. Whenever the oil price climbs, its shares follow. When a resolution seems possible and oil falls, so do BP shares.
With Hormuz apparently closed again, BP has been climbing today (20 April). That could reverse at any moment. So how can investors make sensible decisions at a time like this?
I’m always wary about analyst forecasts, but I was curious to see what they would say about this stock. Currently, 28 brokers offer one-year forecasts, producing a consensus target of 604p. That’s up a modest 8% or so from today’s 559p. Add a forecast 2026 yield of 4.7%, and the total return comes to 12.7%. That would turn £10,000 into £11,270. Which is perfectly respectable, but nowhere near as exciting as the last 12 months.
Forecasts are precarious at the best of times. Some of those estimates may be gathering dust, possibly even pre-dating the Iran conflict. There’s also a wide range of outcomes, with a low estimate of 382p and a high of 777p. With the shares at around 559p today, that last one would mark an increase of 39%. It could happen. Frankly, anything could right now.
Is BP now too risky to buy?
In periods of extreme short-term volatility, it often pays to look further ahead, say, five to 10 years. With luck, the Iran conflict will be long over by then, although nothing is certain. If the planet warms, political pressure on fossil fuel producers could intensify. Renewables may also have advanced significantly. Both would pose a threat to BP.
Yet recent events underline how vital oil remains to the global economy. Even if demand for fuel declines, it will still be needed for plastics, pharmaceuticals, feedstock, and fertiliser, although not to the same extent.
With a forward price-to-earnings ratio of around nine, BP looks good value despite its strong run. But it’s not without risks. I think it’s worth considering as part of a balanced portfolio, and will hold my stake. But I can see much less bumpy income and growth opportunities on the FTSE 100 today, and I’ll be pursuing those for future purchases.
