JP Morgan hails BP's best-in-class cash break-evens

Analysts at JP Morgan reiterated their 'overweight' stance on shares of BP despite their "cautious" outlook for the price of oil.

They also stuck to their 530.0p target price.

Christyan F Malek, Matthew Lofting and Dhanush Arun referenced their "strengthened" conviction that BP's financials would reach an inflection point in the second half of 2017.

Above all, they touted the company's "best-in-class" organic cash breakeven of $30.0 a barrel by 2020, which would position the stock as the most defensive against the investment bank's outlook for the oil price.

More specifically, they expected the outfit's free cash flow to jump from $900.0m during the first quarter of 2017 to $1.8bn in the fourth quarter.

Continued improvement in its free cash flows through 2018 should, they said, compress the "premium" 7.0% dividend yield.

Seven key projects due to start-up in 2017, followed by a further two in 2018 would contribute an additional 280,000 barrels of oil equivalent per day to end-2018 and $2.4bn of cash flows from operations.

That would equal 10% of JP Morgan's estimate for BP's CFFO next year.

To 2020, the analysts estimated they would add $4.6bn-worth of cash flows or 27% of the group total.

In parallel, between 2016 and 2020 the investment bank said the firm's unit operating costs would decline by 17%, thanks to its differentiated angle on technology and innovation.

Market-led deflation also meant that in 2020 group capital expneditures would be at $14bn, versus a consensus forecast for $16bn.

As regards the company's downstream activities, they said they were "underappreciated".

JP Morgan expected them to generate earnings before interest and taxes of $7.2bn by 2020, versus $5.6bn at present.