BP plc Ordinary US$0.25 (BP.)

Company overview

British Petroleum is a major global oil and energy provider, situated within the world’s top five companies by stockmarket valuation and employing over 100,000 people in over 100 countries worldwide. BP has 28,500 service stations around the world and via its retail outlets, serves around 13 million customers each day.

HL Update (29 April 2008)

The group’s recent first quarter results appear to have verified the positive outlook comments given at the group’s full year results back in February. A bumper set of figures were reported with net profits growing to $6.49 billion from $4.07 billion last time, ahead of the consensus figure of $5.26 billion. Profits have been buoyed by higher energy prices which have offset the impact of weaker refining margins. That said, management did manage to restore some degree of refining production, aiding downstream performance as well. In addition, Furthermore, and allowing for positive results at rival Royal Dutch Shell, there maybe some generalized hope that oil major shares may now more accurately reflect what appear to be buoyant underlying industry conditions. Overall, market consensus opinion is now resolutely positive in tone.

HL Comment (5 February 2008)

This global oil giant remains in a period of transition. Former Chief Executive Lord Browne has been replaced by the former head of Exploration and Production Tony Hayward, with a major restructuring now under way and significant job losses materialising. Furthermore, although the company is attempting to concentrate on its interests in such regions as China, India and Russia, recent difficulties in the USA via the Texas oil refinery explosion and Alaskan pipeline leaks continue to linger in the memory of investors.

Recent fourth quarter and full year results further underlined what a difficult year 2007 had proved for BP. Even after allowing for one-off exceptional items relating to the closure of the group’s US forecourt convenience stores and previously announced restructuring measures, clean earnings over the fourth quarter period declined to $4.00 billion from $4.04 billion, missing consensus estimates at around $4.30 billion. Despite a historically high oil price, management pointed to weaker profit margins in the refining and marketing business, along with higher taxes for the difficulties. In response to the challenges within the downstream refining and marketing business, management announced increased investment expenditure in order to try and rectify the difficulties, along with further ongoing restructuring measures.

Acting for negative investor concerns, operational performance continues to lag behind major rivals, the group’s production growth outlook remains below that of peers such as BG Group and costs across the industry continue to rise as new energy finds become increasingly difficult to access – deep sea discoveries - and governments across the world look to advance their share of the profits. On the positive, production levels have finally begun to improve, cost savings from the group’s restructuring plans should soon begin coming through and a marked increase in the Q4 dividend should provide additional underlying support to the company’s share price.  Furthermore, with the oil price remaining up above the historical average and broader concerns for the health of the global economy remaining high, the group’s strong cashflows and progressive dividend policy should continue to appeal. On balance, current market consensus opinion is cautiously positive in tone.

All yield figures are variable and not guaranteed.

Fundamental Data

* Prior to 31st December 2005, figures were stated under UK Generally Accepted Accounting Principles (GAAP). Recent figures stated under International Financial Reporting Standards (IFRS).