BP PLC's (LSE:BP.) strategy update to investment more in oil & gas and less in renewables was largely in line with expectations for investment banking analysts, but they warned the company faces "execution risks" as it needs to hit the top end of targets to really impress markets.
Citi noted that given the “voluminous press coverage of recent weeks, BP’s strategy update (reset) was never likely to surprise.”
The plan centers on boosting “lagging returns” through capital reallocation – “less transition, more oil & gas” – along with downstream cost improvements and balance sheet deleveraging.
Citi sees BP trading at a 5-10% valuation discount to European peers in 2025/26, with potential activist investor involvement to “unlock that arbitrage, and potentially more.”
A 'buy' rating remained in place.
UBS said the update "largely" met high expectations, with the cuts to capex, share buybacks, and disposals in line with forecasts.
However, the addition of a new deleveraging target was "welcome", as too were an increase to the cost savings target and a "cleaner" distribution policy.
The bank emphasized that execution will be critical, stating, "Key now will be project execution and delivery of the new financial targets which, on current guidance, would drive shareholder distributions higher over time."
UBS also remained on a 'buy' recommendation, with a share price target of 525p, versus the last close price at 430.9p.
JPMorgan lowered its price target from 510p to 480p, similarly seeing “top-end delivery [is] required to enhance resilience.”
The bank expressed a preference for rivals Shell and TotalEnergies, for which is has 'overweight' ratings.
RBC Capital framed BP’s update as a “line in the sand”, positioning the company closer to its peer group.
While much of BP’s guidance was as expected, RBC felt that “the reduction in the buyback was more aggressive than we anticipated.”
Short-term challenges are also expected, with RBC warning “things may get worse before they get better,” with rising net debt and lower production volumes through 2026.
While BP’s $20 billion divestment target includes a potential sale of Castrol and a LightsourceBP stake, RBC noted BP was firm that selling its marketing and convenience business was off the table, stating it would “completely destroy” its trading operations.
RBC kept its 'sector perform' rating and 480p target.
Berenberg described BP’s reset as making the company “more shareholder friendly” and also saw it as improving its ability to compete with peers.
However, it noted that organic free cash flow generation "continues to lag peers" and suggested that buybacks would need to be "paid from the proceeds of divestments that are chipping away at the underlying cash flow of the company."
BP’s net debt target of $14-18 billion by 2027 was seen as achievable through divestments, but added that the midpoint of the net debt guidance of $16 billion would still have gearing at 26% including leases, and 36% including hybrids "well above peer levels".
A 'hold' rating remained, with a 450p target.