Monday 13 May 2019 11:06 amInteractive Investor Talk

BP: Discipline and efficiency underpin 'buy' case

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Profits are down in the first quarter, but BP remains on track, writes our head of markets.

BP (LSE:BP.) may not have repeated its immense performance from the full-year numbers in February, but nonetheless remains on track to deliver on its strategic promises.

The company's prodigious cash flow continues to enable its share buyback programme, which will ramp up further in the second half of the year. Meanwhile, there is also an increase to the dividend in the quarter, which will add to an already attractive yield of 5.6%.

The company now has operational control of acquired BHP assets, which should lead to the synergies previously identified in due course, while the more recent strength in the oil price, which should filter through in the second quarter, will further bolster the numbers. The underlying replacement cost profit has dipped 8.9% against strong comparatives, although the figure is slightly above expectations.

Source: TradingView Past performance is not a guide to future performance

As ever with a company of BP's complexity, there are areas of the business which require constant attention. Inevitably, the volatility of the oil price at the beginning of the year had an impact, whilst the company's gearing figure has inched higher to 30.4%, although the company has reiterated its intention to reduce this figure to somewhere around 25% net year, following further divestments.

Meanwhile, revenues dipped slightly for the quarter and the Gulf of Mexico spill is not yet ready to be consigned to the history books, with another £600 million of payments made in the quarter.

Overall, however, progress may be complicated, but it is clearly visible.

The shares have also seen the benefit of BP's stated objectives, having risen 3% over the last year, which compares to a dip of 1% for the wider FTSE 100 index and having spiked 10% in the last three months alone.

The company's historic position as a core portfolio constituent is in little danger, and a matching market consensus of the shares as a 'buy' is most likely to remain intact.

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