BP's Shares Wobble as Earnings Triple

BP shows earnings improvement, but cash flow growth to wait for second half of year say Morningstar equity analysts

Allen Good 2 May, 2017 | 4:00PM

BP’s (BP.) first-quarter adjusted earnings jumped nearly threefold from a year ago as an increase in oil prices and production volumes returned the upstream segment to profitability. Total underlying replacement cost profit increased to $1.5 billion from $532 million a year earlier. Upstream earnings swung to a $1.4 billion profit from a loss of $747 million last year on higher product realisations and a 3% increase in production.

Downstream earnings slipped slightly to $1.7 billion from $1.8 billion last year on higher turnaround activity and a decline in trading performance. While BP posted similar earnings gains with peers, cash flow growth was relatively weak. Excluding $2.3 billion of Macondo-related payments, underlying cash flow increased to $4.4 billion from $2.9 billion last year. While this was sufficient to cover capital spending, BP fell short of covering the cash portion of its cash dividend.

However, we do not view the first quarter as indicative of the full year, as we expect cash flow generation to improve as BP brings on the remaining four of the seven new projects slated for startup this year. Management has guided to an increase in cash flow of at least $1 billion by the fourth quarter relative to the first, which we anticipate will allow it to cover the dividend for the full year. Our fair value estimate and moat rating are unchanged.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
BP PLC305.75 GBX-2.61

About Author

Allen Good  Allen Good is a senior stock analyst covering the oil and gas industries.

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