Investors are giving a big thumbs up to better-than-expected third quarter results from oil major BP (BP.). Accompanied by a near-6% hike in the payout and a new $10 billion asset disposal programme, the shares advance 5% to 474.9p.
Our view on the company has turned more cautious in the last few months in light of the continuing uncertainties over the Gulf of Mexico disaster and pressure on the dividend. We would therefore have to confess to being slightly wrong-footed by the surprise increase in the divi from 9 cents to 9.5 cents. A good chunk of the expected $10 billion proceeds from planned divestments is expected to fund further share buybacks, with the group halfway through its current $8 billion buyback.
Looking at the numbers themselves in more detail, underlying replacement cost net profit (stripping out the impact of oil price movements) comes in at $3.7 billion, compared with a consensus forecast of $3.2 billion.
This is still sharply down on the $5 billion posted for the same period in 2012 and as RBC Capital Markets analyst Peter Hutton notes: 'much of the beat was admittedly in lower corporate charges, lower tax and a positive consolidation charge'. Before getting too carried away it is also worth keeping in mind the potential liabilities the company continues to face from the 2010 Gulf of Mexico oil spill (despite the partial victory on private sector claims earlier this month) which we examined in some detail here.
It is also worth remembering that BP produced a very strong set of numbers in the first quarter of the year and then followed this up with a very weak second quarter – with net profits of $2.7 billion a long way below a consensus forecast for $3.4 billion and down 25% year-on-year.
From our perspective the market is likely to look for much greater consistency before it is willing to consider a more tangible re-rating of the stock.
Investec, which has a hold recommendation on the stock and price target of 440p, comments: 'The stockmarket doesn’t want the oil majors to spend money. Instead, investors want their cash back. And BP has obliged this morning, with an increase in the dividend, a new $10 billion disposal programme (with proceeds going to share buybacks) and indicated flat capex in 2014. The bull case for 2014 is that operational gearing could surprise on the upside. The downside is that this could yet be overshadowed by the Macondo legal fallout.'