Eyes Down For BP plc Results

BPNext week is going to bring us a number of key FTSE 100 results, as interim season gets into full swing.

One of the big ones will be BP (LSE: BP) (NYSE: BP.US), due to report on its first-half performance on Tuesday 29 July.

Profits for the big oil companies can swing erratically year to year, and after a strong year last year we have a fall in earnings per share (EPS) of about a third forecast for the year ending December 2014. For 2015, there’s a small rise predicted, suggesting that EPS should settle around the 50p mark.

Dividends of about 24p are expected, and we’d see them covered twice by earnings — and that’s probably about right for a company that needs to make significant investments to keep future oil flowing.

Off to a good start

At Q1 time in April, chief executive Bob Dudley said the company had made “a very solid start to 2014“, telling us that cash flow was strong and that there had been some exploration success with some upstream projects started. He went on to say “We expect material growth in operating cash flow […] to deliver sustainable growth in free cash flow. This will support increasing distributions to our shareholders“.

During the period, BP came close to completing its $8bn share buyback programme, having reached the $7.6bn level. Future divestments will be used “primarily for distributions to shareholders, biased towards share buybacks“.

Do buybacks make more sense than handing out special dividends? They can do if the shares are fundamentally undervalued, and BP clearly seems to think that is the case at the moment. With the current share price of 492p giving us P/E multiples of only around 10 for the next two years, and with dividend yields at buoyant levels of 4.7 to 5%, I think so too.

The Gulf thing

BP is still suffering from a depressive effect of the Gulf of Mexico disaster, and while there are uncertainties surrounding legal issues in the US and the final financial toll, that will continue — it’s going to drag on for a few more years yet.

But for the moment, the net costs stand at $42.7 billion, and BP is contesting some claims that it believes to be unfounded.

What are the City’s brokers saying about BP shares? Well, the uncertainty has most of them on the fence with a Hold stance. But around a third of those offering opinions think we should Buy the shares, with almost none in the Sell camp.

No shocks please

There shouldn’t be any surprises in next week’s results — I’ll be quite happy with a “more of the same” outcome.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.