Rivals are still worse off

EXPECTATIONS for BP’s full year results were extraordinarily high, but investors were kidding themselves if they thought the firm could shake off the industry blues entirely. Most were probably carried away by the smashing third quarter results that were 48 per cent ahead of consensus. Still, a weak performance at the group’s refining business dragged on fourth quarter numbers. Like rivals, it has upped refining capacity against a backdrop of falling demand.

With analyst consensus on BP undershooting in the third quarter and overshooting in the third, it’s getting increasingly difficult to estimate earnings from season to season. For that reason it’s important to look at underlying performance.

And compared to Royal Dutch Shell, BP is still doing well. Tony Hayward cut costs by $4bn over the year and exploration is bearing fruit, with new frontiers in the Gulf of Mexico and Iraq. In 2009, BP replaced 129 per cent of production with new reserves, whereas Shell is likely to replace less than 100 per cent.

With a dividend of 56 cents a share this year – and most probably next– BP provides a yield of around six per cent. Trading at an undemanding nine times forward earnings, this stock isn’t half as bad as the market seems to think.