Deutsche Bank says BP's cashflows from downstream underappreciated

Deutsche Bank reiterated its 'buy' stance on shares of BP, telling clients the oil major's downstream operations were being significantly undervalued.

Ahead of BP's Downstream Day on 14 June, analyst Lucas Hermann pointed out how consensus was still only estimating just over $6bn of free cash flow from the segment by 2012, versus the between $9bn to $10bn the company itself was guiding towards.

The mix of businesses that made up BP's downstream ops were more "more robust, better positioned and appeared to hold substantially more potential" than they were credited for, Hermann said.

"Our analysis suggests the potential for capital-light growth that is way ahead of the evident consensus," he said.

BP's downstream units were also significantly undervalued versus those of its peers Royal Dutch Shell and Total.

As the costs associated with Macondo fell, investors should gain greater conviction in BP's dividend, according to the analyst.

Hermann stayed at a 'buy' recommendation on BP with a target price of 515.0p.