BP's upcoming capital markets day (October 10) is likely to focus on upstream and low-carbon businesses rather than financials, according to Barclays.
Highlighting how the mood has changed since the last CMD in 2020 (and how much the crude price has recovered following Covid and the Ukraine war), Barclays points out that at the time BP was valued less than renewables giant Orsted but not anymore.
Barclays has five questions for the CMD: What is the longevity of the current upstream portfolio? Why are assets that were previously to be divested now core to the strategy? How significant is the digital productivity advantage? What was learnt from the low carbon journey of the past three years? and can capex really be kept under control?
“There are many other questions we could ask about Rosneft (LSE:ROSN) (Russia) and the downstream challenges, for example, but we see these as relatively minor issues for the investment case,” said the bank, which notes also that BP was the only European company in the last 12 months to deliver reduced opex upstream
Overall, Barclays says BP’s free cash flow (even at US$60 per barrel) supports a share price of 1,000p or 94% higher than now.
"(BP can) grow dividends by 10% a year to 2025 with the high net debt starting point meaning excess free cash flow will be prioritised for debt reduction.
"The company is a leader on sustainability metrics, has one of the most profitable mobility businesses and is high grading the upstream, while on valuation it has one of highest FCF (free cash flow) yields of the sector."
'Overweight' is the investment rating.