BP's Strategy Presentation eyed for dividend news
The oil giant's high profile presentation could set the tone for the sector going forward
Ahead of the event, analysts at SNS Securities have highlighted that BP has met its key targets for 2008, thus providing a sound platform from which to demonstrate stronger resilience at the bottom of the cycle than peers. However, the stock trades at a discount to peers, the analysts said, prompting a recommendation upgrade to Buy.
SNS Securities expects the focus to be on BP’s dividend stability today and estimates that at US$50 per barrel of oil in 2010, the group will need to increase borrowing by around US$5 billion, raising its gearing by 3% but to a rate it could still sustain for three years to remain within its target band, the analysts said.
Yesterday analysts at Morgan Stanley said oil prices would need to average less than US$25 per barrel for 18 months before BP’s gearing approached 50%, which was the level it reached when the oil & gas producer last opted to cut its dividend.
Morgan Stanley said BP’s dividend yield makes it an attractive stock despite the likelihood of low commodity prices eating into earnings this year and repeated its Overweight stance and 650p target price.
Within Exploration & Production, SNS Securities expects existing production guidance of 4.0 million barrels of oil per day in 2010 and 4.3 million in 2012 to be maintained. BP has already announced its Reserve Replacement Ratio will be greater than 100% but the brokerage expects this year it will be led by new exploration success rather than reliance on Russian revisions.
In Refining & Marketing, the focus is likely to be on cost savings, where SNS analysts estimate US$400 million of annual salary savings from restructuring.
And in Alternative Energy, they are forecasting a challenging follow-up to last year’s introduction, although President Obama’s initiative is to provide stimulus.
SNS Securities sees BP sticking with its US$60 per barrel long-term oil forecast and keeping capital expenditure in 2009 around the same level as 2008: US$20-22 billion.
The brokerage yesterday upgraded its recommendation on the stock to Buy from Accumulate, highlighting that BP has met its key targets for 2008, thus providing a sound platform from which to demonstrate stronger resilience at the bottom of the cycle than peers. The stock, however, trades at a discount to oil & gas peers, prompting the analysts to maintain their target price of 560p, offering 25% upside in addition to the group’s dividend yield of almost 9%.
Shares in BP were this morning trading 0.8% higher at 426p after dropping almost 6% on Monday as markets experienced a broad-based sell-off around the globe and oil prices shed US$ to US$40 per barrel.
