Jefferies upgrades BP to ‘buy’

Jefferies upgraded BP on Monday to ‘buy’ from ‘hold’ and lifted the price target to 570p from 520p.

The bank says it expects the stock to continue to close its valuation gap versus peers, supported by a greater focus on distributions, reduced capex risk and relatively conservative consensus earnings growth expectations.

Jefferies also noted that at the fourth-quarter results, BP "significantly" improved its financial frame by increasing the percentage of free cash flow allocated to shareholder distributions, increasing longer-term visibility for its quarterly buyback programme and tightening its capex guidance.

"On our numbers, the current distribution level ($1.75bn/quarter) can be covered by organic free cash flow down to a $70/bbl oil price," it said.

Jefferies also pointed to potential for a further buyback acceleration in the second half.

"Under both our macro assumptions and strip prices, BP should be able to step up its buyback in 2H24 to $3bn/quarter (from $1.75bn/quarter), which would result in total yield growing to 14.5% (from 11.6%), by far the highest in the sector after Equinor (which is unsustainable)," it said.

It said consensus is showing an acceleration in H2 but only to around $1.9-2.0bn/quarter.