Barclays names BP 'top pick'

Barclays has named BP its 'top pick' in the European integrated energy sector, arguing that the investment case for the oil major has been largely misunderstood.

The bank, which has an ‘overweight’ rating on the blue chip and 475p price target, said BP was "the most misunderstood investment case of the large cap oils".

"Our analysis shows the cashflow generation of the business as having the ability to support a 10% cash return to shareholders in the form of dividends and buybacks in a $60 per barrel environment - the highest in the sector," it said.

"The upstream business may be shrinking in volume terms, but a combination of high grading and cost savings more than offsets this, contrary to what we think is perceived by the market."

Barclays said BP’s 50% step-up in marketing investment was likely to yield a corresponding step-up in cashflow in the division, adding: "The aggregate cashflow of the traditional units is enough to allow BP to ensure competitive cash returns to shareholders, continue to reduce debt, and invest in its low-carbon business."

It concluded: "Ultimately we think the switch to low carbon will be rewarded by investors, but for now it is the performance of the underlying businesses we expect to drive the share price."

As at 1430 BST, shares in BP were trading nearly 2% higher at 320.45p, while Brent crude was trading around $69 per barrel.