BP surges to 2010 high as analysts rave about beat, cash flow

MOSCOW (Bloomberg) -- BP Plc analysts praised results which beat estimates thanks to strength in both the upstream and downstream divisions, helping to send the shares to an almost eight-year high. RBC Capital Markets also lauded BP’s cash flow potential compared with peers. Still, Grupo Santander questioned whether the company’s valuation is becoming too rich, given that the oil price is still far from historical highs.

The British oil giant is the latest major oil company to report earnings as investors weigh the industry’s ability to pass on the rewards of higher prices through share buybacks. Royal Dutch Shell Plc generated less cash than analysts forecast in the first quarter and its shares were hammered after CFO Jessica Uhl said the company wasn’t yet ready to commence a $25 billion stock repurchase program.

Grupo Santander, Jason Kenney

(Hold, PT 505p)

BP’s shares trading at a 2010 high makes the valuation look high relative to the oil price. Grupo Santander sees risks for the price of crude in the second half of the year and recommends to remain ready to lock in profit in BP shares if oil prices retreat.

“We note that BP is trading at a highest level since May 2010 and that also with Brent oil at $115 per barrel in June 2014 BP shares reached only 523.9 pence per share. This makes BP’s current level look “full.”

Morgan Stanley, Martijn Rats

(Equalweight, 550p)

BP’s first-quarter earnings beat was supported by both upstream and downstream. In upstream, BP benefited from underlying production growth and all-time high plant availability, which supported improving operating efficiency, as well as a strong trading result. In downstream, BP’s results were supported by wider WTI-WCS spreads, which is beneficial for its Whiting refinery in the U.S.

Canaccord, Alex Brooks

(Buy, 530p)

Recommends focusing on BP’s U.S. business moving into "material" profit despite a jump in exploration costs.

“Big surprise is U.S. upstream business being significantly profitable, especially because it was with a big jump in the exploration charge,” Brooks said.

RBC Capital Markets, Biraj Borkhataria and Thomas Klein

(Outperform, 600p)

"We expect improving earnings and cash generation to show through early 2018 as BP captures higher commodity prices and widening crude spreads,” RBC said in a note. “We expect BP’s cash flow generation to improve this year, both on an absolute basis and relative to peers. This should help improve confidence around BP’s dividend.”

Also noted strong results in both upstream and downstream divisions, which translated into underlying cash flow.