BP gushes higher on SocGen upgrade

“We upgrade from ‘hold’ to ‘buy’, despite lower estimates, on our expectation that having started earlier than the industry on the cost-reset, and on our key assumption of an oil price recovery towards $60 during 2017, BP will be able to balance cash flows and sustain dividends.”

SocGen said BP was the first in its coverage universe to launch a strategy of ‘value over growth’ in 2011, with the rest now following its lead by also focusing on value/free cash flow.

The bank reckons that as an early starter, BP has an advantage.

“BP was the first to recognise very early in 2015 that oil could drop to $45/bbl and stay lower for longer – at a time when markets were still expecting $80-90.”

SocGen expects to see oil demand growth this year and the next, versus non-OPEC supply declines, which should eventually drive inventory reductions.

It noted that global spare capacity will be minimal once Iran returns to the market, adding that the material capex reduction in non-OPEC will impact both the decline rate of existing production and new supply growth negatively.

The bank downgraded its earnings per share assumptions on BP by 69% and 25% for 2016 and 2017, respectively, to reflect its new, lower commodity assumptions.

As a result, it cut its price target to 375p from 405p. At 1235GMT, BP shares were up 2% to 345p.