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The BP (LSE: BP) share price just can’t catch a break. Over the last 12 months, it’s slumped more than 20%, hit by a mix of weak oil prices, poor sentiment and confusion over where the business is heading.
I took the plunge last autumn, seeing an opportunity while others ran for cover. It hasn’t gone well so far.
BP (LSE: BP.) has taken a string of hits. Oil has stayed stubbornly low, with Brent hovering near $65 a barrel. OPEC+ has been lifting supply, which isn’t helping. The US economy is looking shaky. China’s recovery is patchy. Add in Donald Trump’s tariff war, and it’s no wonder investors are nervous.
The net zero transition has caused plenty of confusion inside BP too. It promised to go green but CEO Murray Auchincloss is putting oil and gas back at the heart of the business. That’s cheered some shareholders, but the long-term strategy still looks muddled.
Concerns are building
First-quarter results, published on 29 April, showed underlying replacement cost profit – BP’s key measure – coming in below forecasts at $1.38bn. That beat the previous quarter’s $1.17bn, but was still down heavily from $2.72bn a year earlier.
Net debt jumped from $24bn to almost $27bn year-on-year. The quarterly share buyback was trimmed from $1.75bn to $750m.
Activist investors have been circling too. Some want the group broken up, arguing it’s too unwieldy and poorly run. There’s been talk of a Shell merger, even a US listing. I try not to get sucked into that sort of speculation.
One clear positive is the yield. It’s a chunky 6.74% on a trailing basis. But that’s more a symptom of the falling share price than underlying strength. Over the last 10 years, the dividend has actually shrunk, with a compound annual growth rate of -2.15%. Over five years, that widens to -5.07%. That includes the pandemic, but even so, it’s not what income investors want to see.
Forecasts are mixed
On 19 May, Jefferies downgraded BP to Hold from Buy and slashed its target price from 550p to 390p. That’s only a bit above today’s 360p.
The bank said the group faces a tough choice between reducing debt, keeping the buyback going or sacrificing production growth. It also flagged up high leverage and execution risk. BP has underperformed its European rivals by 5% so far this year.
Enough of this gloom! Others are more optimistic. The consensus one-year target from 27 analysts is 433p, which would mark a 20.5% increase from today. If that plays out, the total return with dividends could hit 27.25%. That would lift a £10,000 investment to £12,725. I’d take that. In a flash.
Still more work to do
It’s far from guaranteed though. So much depends on external forces like oil prices, and nobody can predict where they’ll go next. Even if prices do recover, it’s got to navigate the green transition, and convince markets that it knows where it’s going.
Investors might consider buying BP at today’s levels, but I’d suggest doing so with eyes wide open. BP isn’t the surefire bet it seemed in the latter part of the 20th Century.
