BP will tomorrow kick off a big week for the FTSE 100’s oil giants when it reports its first quarter results, with the firm seeking to bounce back from 2020’s $5.7bn (£4.1bn) loss.
With oil prices now hovering back around pre-pandemic levels due to a combination of Opec-led production cuts and optimism over the global recovery from Covid-19, the firm’s profit should show signs of improvement, says AJ Bell investment director Russ Mould.
A consensus of analysts have said that BP’s underlying profits could double to $1.6bn.
However, whether that translates into movement in BP’s share price remains up in the air.
Despite the price recovery, the blue chips’s stock remains more or less the same price as it was 12 months ago.
Mould says this is in part down to chief executive Bernard Looney’s ambitions to turn the supermajor into a company fit for an oil-free future.
“This turgid share price performance may in part reflect investor scepticism that BP can juggle its cashflows to the point whereby it can maximise value from its current hydrocarbon assets, invest effectively in renewable and alternative energy sources and pay out healthy dividends”, Mould says.
However, shareholders did get some good news at the beginning of this month when Looney announced that the firm could hit its $35bn disposal target 12 months early thanks to a raft of disposals.
Analysts said that this raised the question of whether BP would begin a new round of share buybacks, as previously pledged.
Investors will also be keeping a close eye on cash flow, Mould explains, because that is the figure that drives the firm’s all-important dividend.
Having halved it in the second quarter of last year, investors will be looking for any update on plans to increase it – though none are expected at this point.
Besides the financial outlook, analysts will also be looking to the company for guidance on its next steps for the energy transition, as Steve Clayton, Hargreaves Lansdown select funds manager, says.
“The UK’s announcement of tougher carbon reduction targets suggests demand for fossil fuels could fall faster than previously envisaged, raising the pressure on Big Oil to reinvent themselves as low carbon energy providers.”