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Are BP shares a good investment?

By Saima NaveedStock MarketsOct 12, 2023 15:09
Are BP shares a good investment?
By Saima Naveed   |  Oct 12, 2023 15:09
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BP (LON:BP) shares have been on an exciting bullish journey for quite a while. Ever since the stock hit a low of 196.6p in October 2021, the share has been rising continuously to date.

This upward trajectory is hardly surprising given the direction of oil and, in turn, energy prices. As such, the oil & gas giant stock has risen by a whopping 154% to date. While this bullish journey continues, let’s dig deeper into the company’s operations and the future outlook of BP shares.

Key Points

  • BP is a global energy company which is transitioning towards a net zero company by 2050.
  • BP shares are on a prolonged bullish journey triggered by inflation.
  • Despite the reduction in reported profits, the company is delivering to shareholders via dividend growth and share buybacks.

What does BP do?

BP is a global energy company that is transitioning towards a net zero company by 2050. By 2030, the company aims to pivot from an international oil company to an integrated energy company1.

The group has operations in Europe, North and South America, Australasia, Asia and Africa. And they deliver energy solutions across the world.

How do the financials look?

The integrated energy company showed resilient operational and financial performance in the second quarter of its 2023 fiscal year ending in December.

Reported profit for the quarter was $1.8bn, compared with $8.2bn for the first quarter of 2023. This reduction is majorly due to lower oil and gas realisations. The company’s underlying performance was resilient, with good cash delivery of $6.3bn in operating cash flow in the second quarter.

In addition to operational investments, the energy company is also delivering to its shareholders via dividend growth and share buybacks.

The bull case for the BP share price

BP shares are trading near 526p with a market cap of £91bn. As previously mentioned, shares have been on a prolonged bullish trend for the past two years. In continuation of this share price trend, the BP share has appreciated close to 10% year-to-date.

The oil and gas company’s strength is its stable performance while transitioning. BP is actively investing in supporting energy security and energy affordability. They plan to invest up to $8m in higher-return bioenergy and convenience & EV charging, all the while focusing on hydrogen and renewables & power.

In addition, the company plans to invest $8m further into its oil and gas segment with the aim of short-cycle fast-payback opportunities with lower additional operational emissions.

The bear case for the BP share price

No doubt, the integrated energy company has a very ambitious plan to become a clean energy company by 2030. Will the company be able to execute this transformation plan? Only time can tell, but the progress made so far is encouraging in my eyes.

Amidst all this, the prime concerning factor to me, as an investor, is the long-term outlook of BP shares. As the whole world is transitioning to clean energy options, will the prime source of revenue hold up?

With oil prices highly volatile and very unpredictable, will the revenue stay stable in the near future? That’s where I’m personally sceptical. Therefore, if management fails in its venture to transition away from this primary source of cash flow, the business could eventually crumble.

BP share price prediction

As of September 2023, institutional analyst share price predictions for BP shares vary. The lowest estimation stands at around 495p, suggesting the stock is trading slightly above fair value. However, others are far more bullish, with expectations that range up to 1,010p!

If the latter is accurate, that indicates that investors currently have the opportunity to double their investment within the next 12 months. As exciting as this prospect sounds, forecasts are never guaranteed. And making investment decisions based solely on this factor is a recipe for disaster, in my experience.

Should I buy BP shares today?

No doubt, the prolonged bullish trend of BP shares excites investors. But I cannot help but feel that this momentum is set to slow considerably in the near future.

The company has benefited significantly from the tailwinds created by inflation at the expense of households. But with economic conditions finally beginning to stabilise and inflation cooling down, the share price driver is on track to diminish.

BP will likely continue to be a critical enterprise in the global economy. But its long-term potential, in my mind, is ultimately tied to its ability to transition to a completely different business model. And while progress so far has been encouraging, there’s still a long way to go with plenty of unforeseen headaches lurking around the corner.

With that in mind, I’m keeping this business on my watchlist for now until management has made further progress.

Originally Published on The Money Cog

Article Sources

  1. BP, bp Integrated Energy Company strategy update

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

Are BP shares a good investment?

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