BP - BUY BP exceeds expectations We reiterate our BUY recommendation for BP after the release of good results. We maintain our BUY recommendation for BP, and we have below listed the highlights: This is a case recommendation. The company will be included in our equity-research universe as long as it holds price potential justifying a BUY recommendation. When this is no longer the case, we will discontinue our coverage although our recommendation is BUY, REDUCE or SELL. This is a noncomplex product Adjusted net result came to USD 3.7bn, which was 26.5% lower than the year before but better than consensus of USD 3.4bn. Earnings of BP's upstream activities were stable compared to the year before, but downstream earnings were weakened due to a low refinery margin. Adjusted for the sale of assets, BP's daily production of equivalent barrels of oil rose by 3.4% y/y to 2.2m. This advance was driven by the opening of new fields and good weather conditions in the Mexican Gulf. BP announced that it will raise its dividend by 5.5% to USD 0.095 in the quarter. This corresponds to an annual dividend of 5%. BP has since 22 March bought back own shares worth USD 3.3bn, corresponding to a reduction of almost 3%. Over the next 6-12 months, BP expects to buy back shares worth a further USD 4.7bn. In one year BP has reduced its net debt by USD 11bn to USD 20bn. Hence, BP s gearing has in 12 months been reduced to 13% from 21% the year before. By now, BP has one of the sector's lowest gearing ratios. BP announced that up to 2015 it will sell assets worth another USD 10bn. The majority of the profit will be distributed to shareholders. There was no important news about BP's ongoing lawsuit in respect of the oil leak in the US. Fundamental valuation Risk News flow Undervalued Average Negative 12-month target price 509,5 Closing price 0,0 Shar e infor m ation High/low latest 12 m 0,0483/0,0417 Price trend (3/12 m) -4%/5% Relative to Euro Stoxx -14%/-18% Market value (Mia. GBp) 84.897 Free float 100% Avg daily vol GBP mio. 13659,1 Reuters Bloomberg Pr ice tr end 556 536 516 496 476 456 436 416 396 BP PLC (GB) Euro Stoxx 50 Source: Jyske Bank & Datastream BP.L BP/ LN o n d j f m a m j j a s o Accounting figures and key figures GBP mio. 2011R 2012E 2013E 2014E Revenue 233.373 234.073 222.369 224.593 Operating profit 19.220 17.672 17.567 18.417 Result before taxes 24.137 16.566 16.845 17.574 Operating margin 8,2% 7,6% 7,9% 8,2% ROE 22,3% 14,3% 12,6% 12,5% ROIC 14,8% 12,1% 11,0% 10,9% EPS 0,8 0,6 0,6 0,6 P/E 5,3 7,3 7,9 7,5 EV/EBITA 5,3 5,9 6,0 5,7 K/I 1,2 1,1 1,0 0,9 Dividend 18,1 20,0 30,0 36,3 --------------------------------------- Jyske Markets, Vestergade 8-16 DK-8600 Silkeborg Senior Analyst, Equity Research, Robert Jakobsen +45 89 89 70 44 - jrj@jyskebank.dk ----------------------------------- Important investor information: Please see the last page
We maintain our BUY recommendation: BP has a strong earnings profile and is well on its way to meet its 2014 target of a 50% higher free cash flow relative to 2011. It is expected that the increased cash flow will be used to reward investors through a higher dividend and by buying back shares. In addition, BP is trading at a discount (estimated 2014 P/E of 8.5) and with an attractive discount to peers. We do not consider this discount fair, although expenses related to the Macondo accident cause uncertainty.
Disclaimer & Disclosure Jyske Bank is supervised by the Danish Financial Supervisory Authority. The research report is based on information which Jyske Bank finds reliable, but Jyske Bank does not assume any responsibility for the correctness of the material nor any liability for transactions made on the basis of the information or the estimates of the report. The estimates and recommendations of the research report may be changed without notice. The report is for the personal use of Jyske Bank's customers and may not be copied. This report is an investment research report. Conflicts of interest Jyske Bank has prepared procedures to prevent and preclude conflicts of interest thus ensuring that research reports are being prepared in an objective manner. These procedures have been incorporated in the business procedures covering the equity research activities of Jyske Markets, a business unit of Jyske Bank. Moreover, equity analysts at Jyske Bank cannot trade in equities for which they prepare research reports. If an analyst takes over for the responsible analyst in connection with illness, business travels, etc., this analyst cannot trade in the relevant share on the day of publication of the research report and the following day. Jyske Bank may, however, hold positions, have interests in or business relations with the companies that are analysed. The research report has not been presented to the company prior to its release. Analysts receive no payment from persons interested in individual research reports. Read more about Jyske Bank's policy on conflicts of interest at www.jyskebank.dk/terms. Jyske Bank s share recommendations current allocation Allocation of recommendations, Danish shares (number) Allocation of recommendations, all shares (number) 14 12 10 8 6 4 2 20 15 10 5 0 Strong Buy Buy Reduce Sell 0 Strong Buy Buy Reduce Sell Source: Jyske Bank Financial models Jyske Bank employs one or more of the following models: Discounted cash flow (free cash flow), Economic Value Added and the dividend model to determine the fundamental value of a company. The fundamental value is compared to a relative valuation based on multiples such as P/E and EV/EBITA. The recommendation and the price target are moreover adjusted for the expected news flow and the market sentiment based on knowledge of the industry and company-specific circumstances. Jyske Bank s recommendations take into account the expected development in the equity market, the various sectors and company-specific circumstances. Risk Investment in this share is associated with a risk. Movements in the equity market, the sector and/or news flows, etc. regarding the company may affect the price of the share. See the front page of the research report for our view of the risk associated with the share. The risk factors stated and/or calculations of sensitivities in the research report are not to be considered all-encompassing. If the share is traded in a currency other than the investor s base currency, the investor accepts an FX risk. In connection with an ADR or similar papers, the FX risk exists relative to the currency in which the underlying share trades. Update of research report The planned update of the report will be prepared immediately upon the release of the company s financial statements. In addition, research reports may be prepared on special themes specifically for the company or research reports where the company is part of the special theme. These research reports are published on an ad-hoc basis. See the front page for the initial date of publication of the report. All prices stated are the latest closing prices before the release of the report, unless otherwise stated.
Recommendation Risk-adjusted return Strong Buy >20% Buy 10-20% Reduce 0-10% Sell <0% Source: Jyske Bank Share recommendation concepts Our recommendations are relative to the market development and are based on an evaluation of the forecast return within the coming 12 months. The forecast return is the difference between the current price and our 12-month price target (the price target includes the projected dividend). The equity market has historically yielded a return of around 10% (the US equity market, for instance, yielded a return of 10% during the period 1902-2011). When we determine the recommendation for a share we use the 10% as an estimate of the return in the equity market. Since our recommendations are relative and risk-adjusted, it is possible to compare our recommendations across sectors and risk categories. In addition, the potential is stated in absolute terms via our price target. It should be borne in mind, however, that the recommendation is the anchor. A BUY recommendation will remain a BUY recommendation until changed, even if price increases have taken the price too close to the price target. The future and historical returns estimated in the research report are stated as returns before costs since returns after costs depend on a number of factors relating to individual customer relations, custodian charges, volume of trade as well as market-, currency- and productspecific factors. It is not certain that the share will yield the stated expected future return/s. The stated expected future returns exclusively express our best assessment. Contact persons Institutional Private clients Kim Sejdelin Christensen Manager, Sales Desk, Equities +45 87 57 82 81 Klaus Andersen Investment Centre, North Tel. 89 89 30 23 Investment Centre Midwest Investment Centre, Copenhagen Tel. 89 89 10 49 Investment Centre Zealand Tel. 89 89 06 60 Tel. 89 89 10 45 +45 87 57 82 89 Investment Centre Southwest Investment Centre Funen Anders Isager Tel. 89 89 98 31 Tel. 89 89 93 40 Investment Centre Eastern Jutland Investment Centre Silkeborg +45 87 57 82 90 Tel. 89 89 96 55 Tel. 89 89 86 66 Martin Munk +45 87 57 82 84 Michael Lyngsø Investment Centre Trekantsområdet (Vejle - Kolding - Fredericia) Tel. 89 89 80 75 Jyske Bank (Schweiz) AG Jyske Bank (France) Tel. +41 44 368 7373 Tel. +33 493 39 39 00 +45 87 57 82 86 Berben s Effectenkantoor B.V. Jyske Bank (Gibraltar) Ltd Tel. +31 (0)495 456000 Tel. +350 20072782 Jens Johansen PBC Hamburg Private Banking Copenhagen (PBC) +45 87 57 82 88 Tel. +49 40 309 510 24 Tel. +45 89 89 62 32