BP will struggle to honour its massive share buybacks, say analysts

BP will struggle to honour its massive share buybacks, say analysts

BP plc’s fourth-quarter strategy update this Tuesday was an act of “rebalancing the role of traditional businesses versus BP’s low-carbon growth ambitions”, according to equities researchers at Jefferies.

In other words, the British energy multinational is rethinking its relationship with renewable energy following years of disappointing returns, not to mention an improved global outlook for oil and gas.

Woke Twitter will lament such a transgression, but shareholders will hardly be listening, considering the increase in quarterly buybacks to US$2.75bn following record-breaking annual profits of US$27.6bn in 2022, more than double 2021’s US$12.8bn.

However, while Jefferies analysts expect macro conditions to improve, at a current capital expenditure guidance of US$16bn to US$18bn, “BP will struggle to maintain the current buyback pace”.

On the dividends side, Jefferies expects annual growth of 4% as a base case with longer-term EBITDA guidance increasing to the US$46-US$49bn range by the end of 2025 and US$51-US$56bn by the end of 2023.

Oil and gas base production guidance is increased to 13% to 2.3 million per day in 2025 and 25% to 2 million barrels of oil equivalent in 2030.

Despite lower capital expenditure expected between 2025 and 2030, BP hasn’t moved its renewables capacity target of 50 gigawatts and EBITDA guidance of US$2-US3bn in 2030.

Interestingly, Jefferies’ base case for Brent crude is only US$70 per barrel, an exceptionally conservative outlook compared to other analysts.

Goldman Sachs (NYSE:GS)’ commodities seer Jeff Currie foresees crude oil heading above US$100 (£83) per barrel by the end of the year.

Even Jefferies’ upside scenario peaks at US$80 per barrel. Analysts maintain a hold rating with an upgraded price target of 550p against a current market price of 529.2p.

Published: 13-02-2023