Investment bank UBS has raised its price target for shares in BP PLC (LSE:BP.) to 630p from 535p and reiterated its 'buy' rating after the oil major's fourth-quarter results and strategy update.
BP's results were positive, with stronger cash flow generation reported. However, the real standout was BP's strategy update, UBS said.
The company adjusted its course to reduce the decline in production by 2030. This addressed a key investor concern about the longevity of upstream cashflows and shareholder returns. BP raised its dividend by 10% to 6.61 cents per share and announced a buyback of $2.75bn, both above expectations.
UBS believes that BP's higher spending in Upstream, up to $1bn per year through 2030, will help production hold up much better than previously expected. BP's production is expected to be 2.3 million barrels of oil equivalent per day by 2025, which is slightly below 2.0 million barrels of oil equivalent per day by 2030, compared to the previous guidance of a 40% drop by 2030.
The update on the focus on low-carbon was also positive as the emphasis shifted to areas such as biogas, biofuel, hydrogen, and EV charging. Within renewable power, the emphasis is also shifting towards integrated projects with other low-carbon activities.
UBS has raised its earnings-per-share forecasts by an average of 17% over 2023-27E. This is driven by higher upstream production, a higher low-carbon contribution, driven by higher capital expenditure, and a lower share count thanks to higher buyback. UBS expects BP's dividend per share to grow by 10% per year for the rest of the decade, with a buyback of $8.25bn for 2023. The bank also expects the buyback to remain higher for longer, at over $5bn per year over 2024-27.
At the new price target, BP would trade on a 2024 free cashflow yield of 12.5% and a distribution yield of 9.7%, UBS said.