Is Top-Scoring FTSE 100 Share BP plc Still A Buy?

During 2013, I’ve looked at most shares in the FTSE 100 and graded them against these five quality and value indicators:

  • Dividend cover
  • Borrowings
  • Growth
  • Price to earnings
  • Outlook

Some companies scored highly against the business quality indicators of level of borrowings, earnings growth record and outlook. Some shares scored highly against the value indicators of dividend cover and price-to-earnings (P/E) ratio.

Quality and value in harmony

However, the most promising investment opportunities scored well on both business quality and valuation indicators.

In this mini-series, I’m revisiting the very highest-scoring shares to look at events since the original article and to assess the quality of the investment opportunity now. Some of these high-scoring firms could be investment winners for 2014 and beyond so, today, I’m revisiting BP (LSE: BP) (NYSE: BP.US), which scored 22 out of 25 in January. 

Steady progress

Since January, BP has traded well with July’s half-year financial statement showing that cash generation is strong and that profits received a boost from the sale of the firm’s stake in TNK-BP.

The company’s asset-sale programme led to the disposal of its Texas City and Carson, California refineries during the period. Meanwhile, compensation payments have continued through the Deepwater Horizon Oil Spill Trust, and court hearings rumble on with the aim of determining the level of fines BP will pay over the disaster.

BP still scores highly against my business-quality indicators for borrowings, growth and cash flow. In terms of valuation, a forward P/E of 7.9 and a forward dividend yield of 5.5% look attractive and have hardly changed since January. Meanwhile, the share price is down by about 4p.

What now?

Perhaps because of the continuing uncertainty over potential US fines, BP continues to look attractive in terms of valuation and growth prospects. The firms refocus on what it calls high-impact exploration opportunities is encouraging and I think the new partnership with Russia’s state-owned Rosneft is evidence of that policy. As we wait for this growth policy to deliver, dividend payments will be comforting to holders and the firm’s cash-flow performance continues to reassure.

Despite the recently static share price, I think BP looks attractive as an income investment, but I'm also keen on an idea from the Motley Fool’s top value investor. He has discovered what he believes is one of the most alluring income-generating share plays on the London market and sets out his three-point investing thesis in a report called "The Motley Fool's Top Income Share".

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> Kevin does not own shares in BP.