JPMorgan upgrades BP to 'overweight' on Gulf of Mexico settlement

JPMorgan Cazenove upgraded BP to ‘overweight’ from ‘neutral’ and raised the price target to 475p from 450p following the company’s unexpected settlement on Thursday over the 2010 Gulf of Mexico oil spill.

“Whilst our estimate of remaining Macondo related liabilities falls by less than $2bn (only 7p/share), we believe that by bringing unexpectedly early and essentially complete closure to the key tail risks to this tragic event BP becomes more investable to some institutions and, in a challenged space, is thus elevated as a sector relative preference,” it said.

JPM said the deferred payment schedules combined with tax shelter make only a very manageable dent on BP’s cash flow and balance sheet.

It said that if BP reaches its revised 475p price target, it would trade at a discount of 20% to the bank’s sum-of-the-parts of 595p and yield 5.4%. “Given BP is adapting more aggressively than some of its peers to the lower oil price, this is probably fair although we note that its dividend is not fully covered by cash flow in 2017 assuming a Brent oil price of $65/bbl and capex of $19bn.”

At 08:24, shares were up 0.5% at 439.65p.