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Broker tips: BP, DCC

By Iain Gilbert

Date: Wednesday 28 Oct 2020

Broker tips: BP, DCC

(Sharecast News) - Analyst at Berenberg slightly lowered their target price on oil and gas giant BP from 260.0p to 250.0p on Wednesday following the group's third-quarter results.
Berenberg said BP reported "solid" third-quarter results on Tuesday, with adjusted operating income of $1.2bn versus consensus estimates of $600.0m, driven by its upstream operations and lower corporate costs.

The German bank also highlighted that operating cash flow was strong at $4.3bn in the quarter, enabling the company to fully cover its dividend, now at a yield of roughly 8%, with some upside potential from share buybacks likely from 2022.

"The pieces are in place for a re-rating, but we will likely need to see an improving macro environment before investors are willing to pay for an earnings rebound," said Berenberg, which also reiterated its 'hold' rating on the stock.

Berenberg did note that refining remained "weak" so far in the fourth quarter, and said it now believes demand has to recover "meaningfully" before the market tightens, given ongoing excess capacity.

RBC Capital Markets upgraded its stance on shares of sales, marketing and support services group DCC to 'outperform' from 'sector perform' on Wednesday, saying it was taking advantage of recent weakness.

The Canadian bank noted that DCC has been hit hard on a number of concerns around the impact of EVs, falling return on capital employed and lacklustre M&A spend. But RBC said these concerns are overdone.

"Retail & Oil is now in the share price for nothing, we see significant upside potential from M&A, whilst ROCE remains high and we expect to rebound," said RBC, which left its price target on DCC unchanged at 7,400.0p.

In addition, it said the stock's valuation is now anomalous versus other distributors and "very attractive", especially given balance sheet strength.

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