The Ratings Game: Analysts upgrade price targets as BP tops earnings expectations
Analysts have boosted their price targets for oil and gas giant BP as it reported a jump in profits, driven both by the rise in prices thanks to the Russian invasion of Ukraine as well as gas trading.
The oil and gas company said its underlying operating profit jumped to $8.15 billion from $3.32 billion, well ahead of the $6.1 billion expected by analysts, who have said BP
is in “increasingly strong shape” going forward.
Shares in BP rose 1% to 483.90 pence.
Its unit called gas and low carbon energy saw its underlying profit jump to $6.24 billion from $1.81 billion, helped by the gas trading.
In its earnings release to the market, BP announced a $2.5 billion handout to shareholders via a share buyback, taking the full year total to $8.5 billion.
Citi analyst Alastair Syme said results were driven mostly by an “exceptional result from gas trading and higher gas realizations.”
Syme put his 12-month price target for BP at 440 pence.
“The exceptional gas trading result is particularly impressive given the Freeport LNG outage,” RBC analyst Biraj Borkhataria noted to clients on Tuesday, referring to the fire at the Texas LNG gas plant earlier in June. He placed an outperform rating on BP, with a price target of 550 pence.
Bernstein analyst Oswald Clint said the results were “handsomely beating consensus and our estimates by 30%+.”
He reiterated an outperform rating with “33% potential upside to our 640 pence price target.”
BP also reported a $2.1 billion loss for the third quarter, down to a $10.1 billion accounting adjustment from changes in forward gas prices in the second quarter.
Net debt fell to $22 billion, down from $32 billion. It also generated $5.2 billion in free cash flow, which is up from $3.3 billion in the same period last year.
BP said it would pay $2.5 billion in U.K windfall tax this year. Meanwhile, rival Shell
hasn’t paid anything as it said it had invested millions in the U.K, adding that it doesn’t expect to pay the tax until early next year.
New Prime Minister Rishi Sunak brought in a windfall tax in May when he was chancellor, which he said would raise £5 billion from taxing oil and gas companies in its first year.
In a call with analysts, Paul Cheng at Scotiabank asked Chief Financial Officer Murray Auchincloss about its EU estimates for windfall taxes.
“In the EU, I’m afraid I can’t give you an estimate. It’s just not certain enough yet,” Auchincloss replied.
“We understand it’s a very difficult time for our society right now, and we understand why people focus on our global profits,” he added.
Executives said the results reflect BP’s effort to continue to “perform while transforming.”
“We remain focused on helping to solve the energy trilemma – secure, affordable and lower carbon energy. We are providing the oil and gas the world needs today – while at the same time – investing to accelerate the energy transition,” said Chief Executive Bernard Looney.
Looney also highlighted the firm’s $4.1 billion acquisition of Archaea Energy as its most recent step in its “strategic transformation of BP.”
For the next quarter, BP said it expects upstream production to be slightly higher than 2021. Its Gulf of Mexico oil spill payments are expected to hit $1.4 billion pre-tax.
“The company is in increasingly strong shape, enabling it to pursue its longer term ambitions of becoming an integrated energy company,” said Richard Hunter, Head of Markets at interactive investor.
Hunter added that BP’s transition is likely to be a “multi-decade” change that is currently in its early stages.