Fourth quarter profits did fall, but not as much as expected.
Investors welcome boost to BP dividend
- Oil giant reports falling profits but the fall was far less than feared, by around 25% to $2.5bn while the full year profits fell by 21% to $10bn
- Despite production for the year rising by 2.7% as plant uptime improved and new production facilities have come onboard, the lower average oil prices during the last year more than offset the rising production
- Investors welcome a dividend rise of 2.4%
- Shares rise by roughly 4% at the open as markets react to results but also down to some relief that oil prices didn’t slide further overnight after the recent dramatic plunge caused by the Coronavirus
- Recommendation: We view BP will continue to be a major dividend payer with a good yield and attractively priced, so maintain our ‘Buy’ recommendation for investors seeking income and growth
It was no surprise to learn that BP’s fourth quarter profits fell, but only by around 25% to $2.5bn, far less than feared, while the full year profits fell by 21% to $10bn. These are far more modest figures than peers such as Royal Dutch Shell whose fourth quarter profits halved. Despite production for the year as a whole rising by 2.7% as plant uptime improved and new production facilities have come onboard, the lower average oil prices during the last year more than offset the rising production. There were also some impairment charges related to asset disposals. These results have been welcomed by the markets with the shares rising by roughly 4% at the open. Some of that may be down to some relief that oil prices didn’t slide further overnight after the recent dramatic slide caused by the Coronavirus which is having a direct impact on Chinese demand for fuels.
Investors will welcome the fact that it managed to eke out a dividend rise of 2.4% when some of its peers couldn’t. They have also managed to reduce the gearing ratio down to 31.1%, although it is still higher than where they would want it to be. They have indicated though that this should reduce as the year progresses as they plan on making further disposals.
While the dividend was raised, if lower oil prices persist then it may struggle to sustain this, and the market has been discussing the possibility of the group making more substantial disposals such as their 20% ownership of the Russian group Rosneft. Given the desire to reduce debt and the diversification benefits to be received from the BHP share acquisition, I see there being an increased chance of BP giving more thought to this, especially as Bernard Looney takes over as CEO bringing new thought leadership and puts behind a decade that was dominated by the Gulf of Mexico disaster.
We view that BP will continue to be a major dividend payer with a good yield and lower oil prices at present provide a good opportunity at relatively low valuations as we hope that the Corona virus threat is only temporary while Opec is more likely to cut production if oil prices fall too low. We therefore continue but recommendation for investors seeking income and growth and willing to accept a medium level of risk.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.