Why BP just raced to a three-month high

BP is firing on all cylinders, says our head of markets who explains what's driving the heavy buying.

Global oil majors are performing strongly at present, but these fourth-quarter numbers from BP (LSE:BP.) are superlative.

Given the complexity of the operation, BP has the ongoing challenge of keeping the overall engine purring. This has been done with some aplomb, and any number of the metrics have benefited not only from a generally higher oil price over the year, but also a streamlining of operations which has resulted in higher efficiency. 

This in turn means that the company estimates that it can continue to be comfortable with oil around $50 per barrel, although it has also run the slide rule over lower levels by way of contingency planning.

The headline numbers are extremely impressive. Replacement cost profit rose 65% for the quarter and 106% for the year, total revenues improved by 24% over the year, and return on average capital employed almost doubled to over 11%. 

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

The disciplined capital expenditure approach which the company is adopting has been complemented by its asset disposal programme, which amounted to $3.5 billion in the period, with a further $10 billion planned over the next two years, partly as a result of the BHP acquisition.

Additionally, its colossal cash generative ability has enabled the share buyback programme to be an ongoing feature, whilst from an investment perspective, the dividend yield of 6.2% is the icing on the cake. The company is hardly resting on its laurels, with a number of projects either planned or in train, whilst further strategic acquisitions cannot be ruled out should suitable opportunities arise.

Less positively, the BHP Group (LSE:BHP) deal has contributed to a net debt figure which rose 17% and a gearing figure of 30.3%, which is slightly above the company's guided range. Even so, the company itself is comfortable with this number given the quality of that acquisition and, in any event, plans to reduce the figure to around 25% in 2020. 

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The Gulf of Mexico spill surprisingly still gets a mention, with $3.2 billion set aside over the year, although the figure is beginning at last to dwindle. 

However, even these are niggles rather than issues in terms of an overall picture which shows that BP is firing on all cylinders. 

Despite a 10% decline in the share price over the last six months, the trend over the last year is one of outperformance, having risen 6.3% as compared to a 4% drop for the wider FTSE 100 index. The initial spike in reaction to the results is further vindication of a general market view which considers the shares a 'strong buy'.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.