Barclays raises BP target price after investor downstream day

Following the company's downstream investor day, Barclays bumped up its target on the stock from 625p to 675p and reiterated its 'overweight' recommendation.

A differentiated offering in both retail and lubricants, combined with with greater efficiency, would deliver growth, they said.

"We expect it to become increasingly evident that the downstream business can deliver growth in both earnings and cashflow for BP and is far from the low-growth stable business we had previously assumed."

Nevertheless, they remained "cautious" on the prospects for the refining business.

Updating their models for the data provided by BP the broker lifted its earnings estimates for downstream in 2021 by roughly 40%.

However, Barclays was still "shy" of BP's target for between $9.0bn and $10.0bn of free cash flows by 2020, due to their caution regarding refining.

The second half of 2017 was set to be a particular focus, with a number of larger upstream projects scheduled to start up.

On the other hand, new Maritime Organisation rules in 2020 capping the amount of sulphur allowed in marine fuel oil might act as an offset, they said.

If they were to use the top-end estimate for cashflows from BP then their target price for the shares would rise to 800p.

Offering a prospective dividend yield at present of greater than 7%, in their opinion the shares were "meaningfully undervalued".

"Given that we do not see the market as currently reflecting even risked growth estimates in BP's share price, we see the achievement of this upside level as requiring a return to a full cash dividend, further disclosure and a longer track record of improvements."