JPMorgan Cazenove downgrades BP to 'underweight'

The bank noted BP’s "substantial" miss on third-quarter results, following a soft second quarter.

"This year is revealing BP’s cashflows as increasingly leveraged to wider standard deviation variables - notably trading and working cap," it said.

JPM said the second order has emerged as a weakening risk/reward on future cash return (60% surplus cash), particularly as volatility moderates across parts of the energy complex.

The bank said it was downgrading its rating on BP in the context of a bullish sector stance that prioritises premium beta to an oil supercycle. JPM retained its preference for overweight-rated Shell, TTE and Eni.

JPM cut its FY23 net income estimate for BP by 10% to $14.6bn on the back of the Q3 miss and mixed Q4 guidance. The estimate for FY24 net income was cut by 6% on moderated upstream and "healthy but normalised" gas trading, JPM, said meaning that its FY23/24 estimates are 9% and 3% below consensus expectations, respectively.

Factoring that and signs of a widened standard deviation to BP’s principal cash levers, JPM applied a new 10% fair value discount to the stock.