Bank of America reiterates 'underperform' on BP

By Alexander Bueso

Date: Wednesday 04 Aug 2021

Bank of America reiterates 'underperform' on BP

(Sharecast News) - Analysts at Bank of America stood by their 'underperform' recommendation on shares of BP, pointing out to clients that the oil major's cash returns were less well-funded than at buy-rated peers Royal Dutch Shell and Total Energy.
That was because its medium-term plans for returning capital to shareholders implied that it would pay out more than 100% of the organic free cash flow that it generated.

Hence, said BofA, additional de-gearing now relied on on higher oil prices and/or more disposal proceeds.

In turn, the latter implied dilution risk.

"We reiterate our view that BP's $10bn disposals so far have diluted shareholders on both NPV and FCF - and remain concerned about the current buyers' market continuing this trend with net debt otherwise creeping up by $10bn by 2025.

"By locking in a higher breakeven oil price vs. peers, we expect BP to trade at a greater discount vs. peers (rather than today's level FCF yields near ~15%)."

BoA kept its target price on BP unchanged at 325.0p.


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