BP shares: what the analysts think plus latest price targets

BP dividend and buyback optimism today encouraged a City bank to reiterate its support for the oil giant in the wake of this week’s big earnings shock.

UBS stuck with its “buy” recommendation and target price of 640p, believing that the blow of below-par returns in gas trading had masked underlying operational progress.

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It pointed to production for the three months being 2% above the City consensus, adding that it expects this momentum to support cash flow generation over the next few quarters.

The third-quarter performance enabled BP (LSE:BP.) to announce a further share buyback of $1.5 billion and quarterly dividend of 7.27 cents a share, in line with City expectations.

BP management also expressed confidence about current quarter cash flow generation, leading UBS to forecast an overall 11% distribution yield for 2023 and 2024.

The bank left its cash flow forecasts virtually unchanged but cut its estimate for 2023 earnings per share by 8% following yesterday’s results, when underlying net profits of $3.3 billion fell 60% on a year earlier and missed City forecasts for $4 billion.

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Shares, which peaked at 550p a fortnight ago, traded as low as 488p this morning after JP Morgan switched its rating to “underweight”. Support elsewhere helped the stock recover back towards 500p, with Goldman Sachs analysts joining UBS with a 640p target.

Customers of interactive investor also sensed an opportunity after making BP the most-traded stock on our platform in the past two sessions, with 93% “buy” orders on Tuesday and 83% this morning.

At around $60 per barrel, BP expects to be able to deliver share buybacks of around $4 billion billion a year at the lower end of its $14-18 billion capital expenditure range, and have capacity for an annual increase in the dividend of around 4%.

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Shareholders will receive the third-quarter dividend of 7.27 cents a share on 19 December, with the sterling conversion due to be announced on 6 December. The payout is the same as  the previous quarter but up 10% on the 6.61 cents (5.31p) that landed in accounts in June.

The company, which is currently without a permanent chief executive, said a “resilient dividend is BP’s first priority” within a financial framework underpinned by a cash balance point of around $40 a barrel for Brent crude.

The average price for Brent in the third quarter stood at $86.75 a barrel, down from $100.84 the year before but up from $78.05 in the previous three months. The UK gas price stood at 82.04p a therm, down sharply from 281.01p a therm in 2022.

Current projections are for the oil price to remain near to its current level, reflecting OPEC+ production restrictions and recovering demand.

The oil industry’s attention now turns to tomorrow’s results from Shell (LSE:SHEL), having increased its second-quarter distribution by 15% to $0.33 a share. This award and support for the strategy of chief executive Wael Sawan recently helped Shell trade at a record high above 2770p.