BP PLC (LON:BP) has the most misunderstood investment case of all the ‘large cap’ oil and gas companies, that’s according to analysts at Barclays which now mark it as their top pick in the sector.
The Barclays analysts believe that BP’s switch to low carbon will eventually be rewarded by investors but, in the meantime, they see the price being driven by the underlying hydrocarbons business.
Barclays rates the stock as ‘overweight’ and with a 475p price target the analysts see some 48% upside to the current price of 320.4p.
“Our analysis shows the cashflow generation of the business as having the ability to support a 10% cash return to shareholders in the form of dividends and buybacks in a US$60 per barrel environment - the highest in the sector,” Barclays said in a note.
“The upstream business may be shrinking in volume terms, but a combination of high-grading and cost savings more than offsets this, contrary to what we think is perceived by the market. On top of this, a 50% step-up in marketing investment is set to yield a corresponding step-up in cashflow in this division.”
“The aggregate cashflow of the traditional units is enough to allow bp to ensure competitive cash returns to shareholders, continue to reduce debt, and invest in its low-carbon business.”