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The BP (LSE: BP) share price is smashing the FTSE 100 today (10 February), jumping 8% on news that hedge fund Elliott Investment Management has taken a significant stake in the oil giant.
This is exactly what many investors have been crying out for. There’s a view that BP has lost direction and needs a shake-up as it navigates the green transition. Activist investor Elliott may give it a push.
BP shares have also lacked direction. They’re down 9% over the past year and 7% over five years – despite the energy price spike in 2022.
That’s exactly why I bought the stock a couple of months ago. BP was trading at just six times earnings, with a yield pushing 6%. Even with oil prices under pressure, I thought that was great value. Although I was braced for plenty of short-term volatility along the way.
Can this FTSE 100 stock find its way?
I don’t trade shares based on takeover speculation. I had no idea how the group would unlock value – or who might step in to force change. So, I’ll treat today’s surge as a welcome surprise.
It comes at a time when the oil industry is gearing up for a boom under US president Donald Trump. Many believe BP (and Shell) would be worth far more if traded in New York – or potentially broken up.
Typically, once Elliott takes a stake in a company, it pushes for strategic changes, break-ups or disposals. Investors seem to like the sound of that.
There’s no doubt BP’s share price would be stronger if oil prices were higher, but the big issue remains net zero. Former CEO Bernard Looney pledged to “reinvent” the company and reach net zero carbon emissions by 2050. It backfired – like much of what Looney touched – and forced a pivot back to fossil fuels.
Now the board appears rudderless. Enter Elliott, which is likely to be plotting a new course. As yet we don’t know where.
Dividends and buybacks
BP’s current CEO Murray Auchincloss has been preparing to unveil a new company strategy on 26 February. Now, most of the questions will likely be about Elliott, rather than his plans.
He’ll need to provide some convincing answers, especially with Q4 underlying profits dropping from $3bn to $1.2bn.
Auchincloss has been pushing ahead with a $2bn cost-cutting plan, involving a 5% global workforce reduction and the sale of a refining site in Germany. This comes at a time when the UK government is in disarray over its net zero policies. Energy Secretary Ed Miliband seems keen to shut down the Jackdaw gas field and Rosebank oil field in the North Sea. Press reports suggest that PM Keir Starmer now takes a different view. This kind of uncertainty doesn’t help.
I’m glad I already own BP shares. I can watch events unfold while quietly reinvesting my dividends and waiting to see the impact on the share price. Any share buybacks will be welcome too. They’ve had plenty of those.
The shake-up was coming – and needed. No doubt more share price volatility will follow. I’d just be careful of buying on the spikes, like today’s. This story has a long way to run so investors may want to consider a cautious approach.
