BP PLC (LSE:BP.) should be able to catch up and bring its share buyback above US$3bn in the fourth quarter, according to analysts at Jefferies, though they still prefer Shell PLC (LSE:SHEL, NYSE:SHEL).
The prediction comes after Tuesday’s ‘bumper’ third-quarter results - and in the wake of BP’s investment in renewable natural gas company Archae - which revealed over US$8bn of profits but saw buy-backs confined to a lower than expected US$2.5bn.
“Disappointments around the lower-than-expected 3Q buyback are not entirely justified," Jefferies analyst Giacomo Romeo said in a note.
Romeo, meanwhile, pointed to BP’s gas business’s performance describing it as remarkable, especially compared to rival Shell which showed a weaker performance in its corresponding division in the previous week’s reporting.
BP has been consistently better than Shell and TotalEnergies at capturing the tighter LNG market this year, the analyst noted.
The Jefferies analysts lifted his earnings estimates for BP for the full year by 2%, whilst the net income forecast improved by 11%.
Looking at BP’s valuation and future share buybacks, the analyst said: “BP trades at a 24% and 25% yield based on our FY22 and FY23 FCF estimates, respectively. While this is attractive on an absolute level, it is below Shell's 28% and Total's 27%.
“We believe BP will be able to set buyback at US$11bn over the next four quarters, setting BP's shareholder remuneration yield at the highest level in the sector (12%).”
The analyst noted, however, that Jefferies sees BP’s distributions facing higher risks versus peers because of its focus on low carbon growth, and, the basis of the calculation it uses to determine payouts - which includes inorganic capex.