Deutsche Bank upgrades BP after challenging six months

Deutsche Bank has upgraded its stance on oil giant BP to 'buy' from 'hold' with an unchanged price target of 505p.

The bank said it was upgrading the stock that after a challenging six months which saw the shares lag the European peer group by 7%.

"In doing so we position for anticipated newsflow on project starts (Egypt, Oman, UK, T&T) and external indications that Macondo cash outflows are now moderating.

"Following two disappointing quarters for operating cash flow which have served to undermine confidence in the group's ability to rebalance its cash cycle at current Brent prices we believe the risk/reward balance in the equity is notably improved and that impending volume adds will aid conviction that BP's dividend is not only sustainable but will be augmented by late 2018 buy-backs."

When DB downgraded the stock to 'hold' back in October 2016, it had argued that following the largely sterling-induced run in the nominal share price the valuation placed upon the shares was no longer competitive on a sector basis.

In addition, with the cash outflows on Macondo rising sharply following BP's decision to accelerate the pay down of claims for business and economic losses, DB expected to see a period of added cash flow uncertainty and with it potential investor concern about the group's ability to rebalance its cash cycle at a ‘realistic oil price’, at least in the near term..

Six months later and the bank said these risks have in essence come to pass with the company’s relative share price performance undermined in the process.

At 0918 BST, the shares were up 0.9% to 460.00p.