Barclays reinstates BP as Top Pick, eyes potential for positive surprises

Analysts at Barclays re-instated BP as their Top Pick in the European oils sector in anticipation of a "material and sustained" improvement in the oil major's free cash flow.

Key to the above, three project start-ups are imminent and momentum in upstream should only improve going into 2018, analysts Lydia Rainforth, Joshua Stone and Danni Li said.

Downstream, there is scope for the market to be positively surprised and an investor day on 14 June will afford management an opportunity to discuss its own growth ambitions in greater detail, they said.

"We continue to see this as an area where market forecasts are likely to prove too conservative and building credibility through detailed disclosure should also build confidence in the wider group aspirations on cash-flow."

Despite the inevitable bumps in the road, the 'direction of travel' in BP is far clearer, the analysts added.

Yet in their opinion the expected improvement in the company's operational and financial performance is at odds with the shares' valuation, with the dividend yield stubbornly at 7%.

"As investor confidence in the ability of BP to sustain and grow that dividend improves, we expect to see the shares re-rate."

Barclays has a 625.0p target price on the stock.