Broker tips: BP, Hunting

Analysts at Berenberg raised their target price on oil and gas major BP from 450.0p to 500.0p on Thursday following a "strong" first-quarter performance and an even better outlook for Q2.

Berenberg said BP delivered "a strong beat" and boosted share buybacks to $2.5bn in Q2, helped by an "exceptional" gas trading environment and sharply higher refining margins.

The German bank noted that gearing has been "materially lower" over the past two years, with net debt including leases falling from $55.0bn at the end of 2019 to $36.0bn at the end of the first quarter.

"We forecast the company generating a FCF yield of 22% for 2022E, and are currently modelling a $10.0bn buyback in addition to the dividend, providing a total shareholder return of around 13.5% for the year," said Berenberg.

While the analysts noted this "could be higher", they now anticipate that management will want to push gearing "comfortably below" 20% before ramping up shareholder distributions to more than 60% of the surplus cash.

"We continue to think there is material upside to the share price which in our view is not reflecting the potential cash generation of the business over the coming quarters," said Berenberg, which also reiterated its 'buy' rating on the stock.

Analysts at Canaccord Genuity downgraded energy services provider Hunting from 'buy' to 'hold' on Thursday but hiked their target price for the stock from 200.0p to 300.0p, stating risks were now more "balanced".

Canaccord Genuity said following a rapid rise in Hunting's share price to roughly double its low in December 2021 and its view that whilst market conditions for oil services had improved in the short term, risks were now "much more evenly balanced".

Unlike the majority of its peers, Canaccord noted that Hunting has made only "limited progress" away from its upstream oil and gas roots, with non-oil and gas income still making up less than 8% of 2021 total revenues.

The Canadian bank expects Hunting to make acquisitions away from oil and gas in the next two years, likely in "technically adjacent areas" where it is already present, and also in digital.

"Whilst the group's balance sheet is in a robust cash position, we are sceptical that the market will price these potential acquisitions richly," said the analysts.

Canaccord also admitted that activity in Hunting's core markets was "notably improving" but cautioned that expectations had moved "remarkably quickly" and consensus was now for underlying earnings to beat $50.0m in 2022.

"Whilst we share this view, we note that in the past seven years, Hunting has achieved earnings above this $50.0m less than half the time; this is less a return to 'mid-cycle' and more a punt that the oil patch is going to be different this time," said Canaccord.