BP PLC (LSE:BP.) should still be generating sufficient free cash flow to keep rewarding shareholdings, according to analysts at Berenberg, nonetheless, the European bank sees greater potential elsewhere amidst tighter markets.
“Heading into the second quarter results, we expect a significant slowdown in results sequentially, driven by lower commodity prices, higher maintenance and turnarounds and lower trading results,” Berenberg analyst Henry Tarr said in a note.
“More specifically, Oil Products and Operations will likely post weaker results due to lower Brent and European gas prices, and seasonal maintenance will likely affect production.”
Tarr added: “Despite the weaker commodity price conditions, we continue to expect strong free cash flow (FCF) generation from the company, with a FCF yield of near 15% for FY 2023.
“Within the financial frame, the company is allocating 60% of “surplus” cash flow (after capex and dividend) to buybacks with 40% going to further strengthen the balance sheet.
“The company’s gearing situation is comfortable, but it still has the highest leverage of the European major peers at 34% net debt (including leases)/equity, which might point to a higher proportion of cash flow going to balance sheet strengthening than for peers.”
Berenberg has a ‘hold’ rating for BP and has now reduced its price target to 490p, from 560p, compared to its current price of 452p.
BP is slated to report its quarterly results on 1 August.