HSBC downgrades BP to 'hold' from 'buy'

The bank said that while the market is probably too pessimistic about BP’s ability to fund its transition to a lower-emissions world, this perception could take years to change.

"While we think pessimism over the long-term outlook is overdone, we don’t think this will ease for the foreseeable future," HSBC said.

"Meanwhile, with the catalyst for the start of buybacks now behind us and consensus already expecting a 65% recovery in 2021e cash flow, BP’s much-improved financials may not be able to drive outperformance from here."

HSBC said the key issue for BP is how to sustain group free cash flow when upstream volumes are set to fall 40% through 2030. The bank said there are three key reasons why this looks achievable: upstream cash flow per barrel should improve, offsetting some of the volume decline; upstream capex should fall substantially, in line with the shrinking production base; weaker upstream free cash flow should be offset by growth in the customer/convenience segment.