Jefferies upgrades BP to ‘buy’

The bank says it expects the stock to continue to close its valuation gap versus peers, supported by a greater focus on distributions, reduced capex risk and relatively conservative consensus earnings growth expectations.

Jefferies also noted that at the fourth-quarter results, BP "significantly" improved its financial frame by increasing the percentage of free cash flow allocated to shareholder distributions, increasing longer-term visibility for its quarterly buyback programme and tightening its capex guidance.

"On our numbers, the current distribution level ($1.75bn/quarter) can be covered by organic free cash flow down to a $70/bbl oil price," it said.

Jefferies also pointed to potential for a further buyback acceleration in the second half.

"Under both our macro assumptions and strip prices, BP should be able to step up its buyback in 2H24 to $3bn/quarter (from $1.75bn/quarter), which would result in total yield growing to 14.5% (from 11.6%), by far the highest in the sector after Equinor (which is unsustainable)," it said.

It said consensus is showing an acceleration in H2 but only to around $1.9-2.0bn/quarter.