ii view: BP raises doubt over 2025 shareholder returns

Third-quarter results to 30 September

• Adjusted profit of $2.26 billion, down from $2.75 billion in Q2
• Adjusted Earnings Per Share of 13.89 US cents, down from 16.61 cents
• Unchanged quarterly dividend of 8 US cents per share
• Share buyback programme of $1.75 billion 

ii round-up:

Energy giant BP (LSE:BP.) today detailed broadly inline third-quarter results, with profit gains at the gas division more than offset by a fall in oil operations. 

Third-quarter adjusted profit of $2.26 billion is down from $2.75 billion in the prior quarter, leaving earnings at 13.89 US cents per share compared to 16.61 cents in the second quarter. A third-quarter share buyback of $1.75 billion is expected to be followed by the same during the fourth quarter, but with a review of buybacks in 2025 now pending. 

Shares in the FTSE 100 company fell 2% in UK trading having come into this latest news down 14% year to date. That’s below a 2% retreat at Shell (LSE:SHEL) and in contrast to a 7% gain for the FTSE 100 index. 

• Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

BP operates in more than 60 countries. A 14% increase in the average gas price compared to the prior quarter helped push adjusted profit for the Gas and Low Carbon division to $1.8 billion, up from $1.4 billion in the second quarter.

Lower refining margins were triggered by the opening of new industry-wide plant capacity, and slower economic growth in China fed into an adjusted profit at Customer and Product operations of $0.4 billion, down from Q2’s $1.1 billion. 

BP’s net debt climbed to $24.2 billion, up from $22.3 billion in the year ago quarter. A dividend of 8 US cents is unchanged from the prior quarter, although up from 7.27 cents in Q3 2023. 

Broker UBS reiterated its ‘buy’ stance on BP shares post the results announcement. Fourth-quarter numbers are likely to be announced early February.  

ii view:

Founded in 1908, BP today employs over 85,000 people. Geographically, the USA accounted for its biggest slug of sales during 2023 at almost 29%, followed by the UK at 19% and other countries the balance of 52%. Annual group capital expenditure is expected to be around $16 billion. Under relatively new head Murry Auchincloss, BP expects to provide an update of its medium-term plans alongside full-year results in February.

For investors, a pending review of strategy could see share buybacks reduced in 2025, with BP previously highlighting a goal of at least $14 billion. An uncertain economic outlook includes concerns about growth in China, and providing unknowns regarding future energy demand and usage. Gulf of Mexico accident and spillage settlement payments continue, while windfall taxes introduced in reaction to higher energy prices and the war in Ukraine persist. 

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• The Investment Outlook: introduction and house view
• Shell's share price looks broken

To the upside, Middle East geopolitical tensions and possible supply disruption are offering some support to energy prices. A diversity of operations, ranging from hydrocarbon production to windfarm generation, regularly sees challenges for one area countered by positives for another. A further $1.75 billion of share buybacks are expected during the fourth quarter, while BP is targeting at least $2 billion of cash cost savings by the end of 2026 versus 2023. 

For now, and despite ongoing risks and near-term obstacles, a forecast dividend yield of around 6%, combined with a consensus analyst estimate of fair value above 500p per share, look to offer grounds for optimism about the long term. 

Positives: 

• Diversity of operations
• Pursuing at least $2 billion of cost savings 

Negatives:

• Climate change concerns  
• Uncertain economic outlook

The average rating of stock market analysts:

Buy