The UBS buy rating comes with a 380p price target, suggesting some 25% upside to BP’s current market price of 305p.
BP this morning announced a 4% rise in its second-quarter dividend, up to 5.46 US cents per share, and it plans to repeat the 4% increase in the shareholder pay-out each year until 2025. It also launched a share buyback programme as it reported a strong quarterly performance.
The transitioning oil major reported a US$3.1bn profit for the three months ended June 30, compared to US$4.7bn in the prior quarter.
Underlying replacement costs profit (a preferred metric for BP) was marked at US$2.8bn, up slightly from the US$2.6bn achieved in the first three months of the year. Operating cashflow (including US$1.2bn of Gulf of Mexico oil spill payments) amounted to US$5.4bn.
UBS analyst Jon Rigby in a note said that BP’s clean net income beat consensus by around 30% and further highlighted the apparent shift in the company’s dividend policy.
Rigby said: “+4% dividend is a surprise given fixed dividend policy but a welcome addressing of a misstep in the capital frame, we think, allowing for better signalling. BP signals its capacity to grow at 4% per year to 2025.
“BP sees at around ~$60 per barrel oil price scenario, capacity of cUS$1.0bn per quarter in buybacks (UBS sees up to US$1.3bn adjusted for divi but depends on debt reduction). BP expects 3Q21 production to be higher than the second quarter reflecting the completion of seasonal maintenance activity and the ramp-up of major projects.”