JPMorgan Cazenove downgrades BP to 'underweight'

JPMorgan Cazenove downgraded BP on Wednesday to ‘underweight’ from ‘neutral’ and cut the price target to 550p from 615p.

The bank noted BP’s "substantial" miss on third-quarter results, following a soft second quarter.

"This year is revealing BP’s cashflows as increasingly leveraged to wider standard deviation variables - notably trading and working cap," it said.

JPM said the second order has emerged as a weakening risk/reward on future cash return (60% surplus cash), particularly as volatility moderates across parts of the energy complex.

The bank said it was downgrading its rating on BP in the context of a bullish sector stance that prioritises premium beta to an oil supercycle. JPM retained its preference for overweight-rated Shell, TTE and Eni.

JPM cut its FY23 net income estimate for BP by 10% to $14.6bn on the back of the Q3 miss and mixed Q4 guidance. The estimate for FY24 net income was cut by 6% on moderated upstream and "healthy but normalised" gas trading, JPM, said meaning that its FY23/24 estimates are 9% and 3% below consensus expectations, respectively.

Factoring that and signs of a widened standard deviation to BP’s principal cash levers, JPM applied a new 10% fair value discount to the stock.