As BP updates the market Helal Miah, investment research analyst at The Share Centre, explains what it means for investors
BP’s profits double on back of improved energy prices and successful restructuring
- Group replacement cost profit was up $6.2bn from $2.6bn year previous and operational performance also strong
- Results somewhat overshadowed by general plunge in stock market
- We currently recommend BP as a ‘buy’ for medium risk investors
BP’s results and 3% fall at the market open will be somewhat masked and overshadowed by the plunge in the stock market in general. However, looking at the headline numbers investors will be relatively pleased with the progress the group has made over the last year.
Group replacement cost profit was up to $6.2bn from $2.6bn in the prior year, while operating cash flows also showed significant improvements. Naturally the group’s profits were helped by improved energy prices during 2017 but just as important is the deep restructuring the management made in cutting backs costs, capital expenditures and the streamlining of the business. Investors should appreciate that operational performance was also good with roughly 95% reliability helping lift production by 12%.
There were some one off items which dented net profits including $1.7bn related to the Gulf of Mexico disaster along with a $0.9bn deferred tax charge. These won’t be repeated but management do expect depreciation charges in 2018 to be higher. Management have kept the dividend at 10c per quarter.
These are overall a good set of numbers for BP which has also been reflected amongst its larger cap peers. Investors should expect further operational improvements in 2018 as the group enters only the second year of their five year plan, we should expect improvements in the cash flows and returns to shareholders. We therefore continue to recommend BP as a ‘buy’ for medium risk investors.
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