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.
