BP Has It All

Published in Company Comment on 7 February 2012

BP still looks a great share for long-term investors.

BP (LSE: BP) can be a really complex share to get to grips with for traders and analysts.

But for investors, it's nice and easy.

BP makes loads of sense as a long-term investment on all the basic value parameters. That's it. Now we can go out and do something less boring instead.

If you're looking for a share with a bit of everything, BP has it all for me. It remains something of a 'special situation' given the Gulf of Mexico disaster and the still-to-be resolved litigation issues that are holding back the price.

It has an excellent historic yield; one that the company has demonstrated its intention to return to with its final results on Tuesday when it raised its dividend to by 14%. The quarterly dividend is 8 cents per share (the sterling pay-out will be announced on 19 March). The brokers put the potential yield for the year we're now in at 4.3%. But further out, it could be a lot more.

And it looks great on prospective and historic price-to-earnings ratios, with the former around seven. It's highly cash-generative, its net debt looks manageable and I think it's worth a lot more for patient investors.

Who said elephants don't gallop?

As recently as October, I said "please wake me up when the shares go over £5". At the time, they were 373p. They're now 484p (down on the day). So they've put on 30% in a little over three months. Who said elephants don't gallop?

It looks like I may need an alarm call pretty soon. But I won't be selling. That's because I think the shares are worth more on a long-term view at a time when the Deepwater Horizon disaster is a distant, if tragic, memory.

But the elephant won't be galloping further for a little while yet, it seems. There are still some fairly weighty issues to be resolved. So for the traders and analysts who like or need to sweat the detail -- life is a little more complex.

In particular, there's a lot of angst about what the final settlement figure will be with the US government over the Gulf of Mexico disaster -- and whether a deal will be struck before proceedings are due to commence in three weeks' time.

Politics and legalities

BP has earmarked $12bn for the settlement, having paid out $8.8bn in damages claims. Analysts are second-guessing what the final deal will be and whether or not it will be done before the hearing starts.

In a US election year, it may be in everyone's best interests to see the matter put to bed. But the company doesn't have to deal at any price, and may opt for long and drawn out litigation if a reasonable deal can't be done.

Specifically where the cards will fall is anyone's guess. To give you an idea of the complexities, the notes relating to the legal proceedings included with the final results run to 8,500 words. You can imagine, then, how keen everyone but the lawyers will be to see the back of it.

Meanwhile, the company's operations seem to be going well overall. The second largest oil company in Europe's quarterly adjusted earnings beat its bigger rival Royal Dutch Shell (LSE: RDSB) for the first time in a year.

And once the dust settles over the litigation, and BP can finally see some clear blue sky ahead of it again, perhaps it will regain its pre-Deepwater 'number one in Europe' position? It certainly looks better value than Shell at today's prices on a long-term view. And that's the one I like to take. Please wake me again when the shares hit £7.

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> David owns shares in BP.

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popsranola 07 Feb 2012 , 1:26pm

BP is a good Income Cash Cow that will grow year by years from now.........Be Lazy Investor and have a constant Income for many , many years to come..........Let 20 years Hold will make 200 dividend growth.......Plus Capital Increase in Value.........BP is now at best.........Remember a good milking Cow is a good cash cow and BP is a good cash cow.......

fedupwithbanks 07 Feb 2012 , 3:15pm


But is it a company being capable of being run by idiots?

eccyman 07 Feb 2012 , 8:51pm

Other fly in the ointment is the holding in the kleptocracy know as Russia.

On a longer term note, I saw Horizon on the BBC a couple of weeks back. US scientists have developed yeast that can turn sugary water directly into diesel - without refining. Straight from the plant into the fuel tank!

But medium term BP looks good and I do hold some..

MacsReturns 09 Feb 2012 , 11:34pm


"But is it a company being capable of being run by idiots?"

It's doing ok under Dudders so far ;-)

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