Company Overview

The British multinational company, BP Plc, operates in the energy, oil and gas business segments globally. BP was incorporated in the year 1889 and located in London, England. The total Outstanding market capitalization of the company is around £106.72 billion.

Key management team comprises of Helge Lund (Chairman); Bob Dudley (Group Chief Executive); Brian Gilvary (Chief Financial Officer); Susan Dio (Chairman and President of BP America).

The company’s major brands are The BP brand, Castrol, Aral, Ampm, Amoco and Wild Bean Café.

BP Plc major business segments focus on Upstream, Downstream, Rosneft and other business verticals.

Upstream: Oil and natural gas exploration, field development, and production using high end upstream digital technology capabilities in seismic imaging and oil recovery opportunities.

Midstream: Transportation, storage, and processing of crude oil and natural gas; focus on ownership and management of oil and gas pipelines, processing facilities, export terminals.

Downstream: Refining, marketing, trading of biogas, LNG, power, natural gas liquids and petrochemical products.

Rosneft: Exploration and production of hydrocarbons; other activities include- jet fuel, bunkering, bitumen and lubricants; owns and operates 13 refineries in Russia with around 2,960 retail service stations.

Other business segments: Production of ethanol, biofuel, solar energy and biopower.

Top 10 Shareholders

 

(Source: TR)

Key Details

 

Key Financial – FY 2018 ($ million)

 

(Source: Company Filings)

Financial Commentary

The company reported sales figure growth of 24.37 per cent to USD 298,756 million when compared with the last year of 2017 data, mainly because of the increase in upstream and downstream segment business across the USA & Non-US. Reported replacement cost profit was $12.7 billion in FY 2018, more than double when compared with last year. In 2018, the return on average capital employed was 11.2% (2017: 5.8%). Operating cash flow for FY18 stood at $26.1 billion, a surge of $2 billion from the previous year. In 2018, divestments and other proceeds were USD 3.5 billion. In the next two years, the company is planning to execute more than $10 billion divestments. In the fourth quarter of the financial year 2018, the dividend as announced was 10.25 cents a share.
 

Ratios


(Source: Thomson Reuters)

Ratios Commentary (FY 2018)

EBITDA margin reported was 11.4 per cent in FY 2018, reflecting an increase of 1.8 per cent when compared with last year data. Net margin of 3.2 per cent for FY18 stood significantly lower than the industry median of 7.5 per cent, reflecting weaker profitability growth as compared to industry performance. Return on equity stood at 9.4 per cent in FY 18, lower than the industry median of 10.0 per cent.

On the liquidity front, BP plc liquidity position was lower than the industry median. Both current and quick ratios declined in FY 18 as compared to the last year. On the leverage front, the debt-equity ratio was up as compared to the industry median.

Company's asset turnover ratio of 11.6 was higher than the industry median of 6.0, but on a year-on-year basis, the company's efficiency in generating sales out of its assets has improved significantly.

Recent Developments

West Nile Delta project’s second stage activities started as announced on 11th February’19.

On 24th January 2019, the energy major BP invested in Power Share, electric vehicles segment. BP Ventures was the lead investor in the series A round financing and follow up investors, Detong Capital Partners, private equity firm in China.

On 14th January 2019, the company has signed a contract with Eni Group to explore significant exploration opportunities in Oman.

UK Electric Vehicles News (January 2019)

Electric Vehicle (EVs) sales have risen drastically in the UK. In 2014, only 500 EVs registered per month. But in 2018, there were more than 4800 registrations per month. Currently, plug-in car market accounts for about 4.2% of all new cars sold in Britain.

The eventual cost parity of combustion engine vehicles and EVs is expected to kick-in by 2024. The UK government also gave the EVs market a shot in the arm with the introduction of 2018’s Automated and Electric vehicles Act which states new laws on introducing charge points at motorway services.

The EV industry is becoming highly contested as many big energy companies like Royal Dutch Shell and BP are announcing a new association almost every other week. With several automakers announcing plans to roll-out electric models in recent years the demand is going to burst sooner than thought.

Ford previously announced to launch 40 electrified models by 2022 while investing $11 billion in the plug-in technology, which is more than twice than its earlier estimate. Volkswagen has gone even further claiming that it will produce its last-gen fossil-fuel vehicles in 2026 and earmark 50 billion dollars for electrification.
 

Valuation Methodology (EBITDA (FY19) approximately)

 

While valuing BP Plc on EV/EBITDA Multiple, we have considered top 5 median EV/EBITDA of its peers, which were Exxon Mobil Corp (NTM EV/EBITDA stood at 7.8x), Royal Dutch Shell PLC (NTM EV/EBITDA stood at 5.24x), Chevron Corp (NTM EV/EBITDA stood at 6.19x), Total SA (NTM EV/EBITDA stood at 4.98x), and Equinor ASA (NTM EV/EBITDA stood at 3.2x).

In the last two financial years, the company had beaten the consensuses estimates for Earnings per share. In FY2017, the company reported EPS which was 121 per cent more than the estimates. Similarly, in FY2018, the company beat the estimate by 106 per cent. Similarly, the EBITDA reported by the company in the last year has been substantially more than the street estimates. In FY2017, the company reported EBITDA 66.5 per cent more than the previous year. In FY2018, the company reported EBITDA 36.4 per cent more than estimates.

*All forecasted figures have been taken from Thomson Reuters.

Stock Performance


(Source: TR)

As of 26th February 2019, the stock traded at GBX 533.0, down by 0.74 per cent from the previous day closing price. 52 Weeks high/low of the stock is GBX 603.60/GBX 456.45. At the closing price, the share was trading 11.70 per cent lower than its 52w High and 16.77 per cent higher than its 52w low.

In the last three months, the share price surged by 1.56 per cent. Stock’s average traded volume for 5 days was 27,632,891.40; 30 days - 27,854,161.03 and 90 days - 32,767,565.02.  Average traded volume for 5 days was down by 0.79 per cent when compared with 30 days average traded volume.

On the dividend front, the dividend yield for BP plc as of today stands at 6.10%. The dividend yield for BP plc (last fiscal year) was 5.8 per cent which was higher compared to the Oil and Gas industry, sitting at 4.5 per cent. The same was even lesser, 4.2 per cent, for the Energy sector. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 12.5x. The company stock beta was 1.45, reflecting relatively high volatility as compared to the benchmark index.

Conclusion

While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week high with support coming from growth drivers like increased revenue mainly because of the increase in upstream and downstream segment business across the USA & Non-US. Based on the strong growth prospect of the company we have given a BUY recommendation with a high single-digit upside potential based on 5.24x NTM EV/EBITDA on FY19. 

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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