Monday, April 8, 2013

Analysis of British Petroleum (BP)

A british oil, gas and chemicals company


Company: British Petroleum

Business:  Energy, mainly oil both upstream and downstream. I was sad to read about that they are selling off their windpower parks in the US. I don´t know if it is really that unprofitable or if it is an effect from the Deepwater Horizon where BP will have some restrictions in the future as a company dealing with the US government. Looks like everyone is going after the profits from fracking. I´m concerned that it will lead to many more earthquakes. I hope Münchener Rückversicherung will know how to take care of themselves when those potential issues appear.

 Active in: All over the world.

(I´m still working on how to integrate the excel data in the best way. )

P/E: 6.8


The price for the stock is from closing day 05.04.13
contrarian value of P/E, P/B as well as dividend

























































The running P/E of BP was surprisingly high. I did not expect that. When I bought it based on the values I had then it was at a P/E of far below 10. Thinking back this was of course understandable. I looked at the earnings before crisis and compared with the stock price during crisis. The litigation has since then been running meaning that they have started to pay money to everyone asking for it (which they also should have done!) as well as done some heavy divesting which has significantly decreased the earnings during 2012. The P/B value is very good and for this reason following Grahams formula we still end up with a company that is a good buy. The E/S is far from impressive but must be due to all the litigation costs and it will improve in the coming years. The growth due to the divesting etc has not been impressive with its 0.5% per year during five years. I put in what I think will for the future be more reasonable which is 5% growth (2% inflation + a small 3% of real growth that must be possible!). Lynch formula which I base on the expected growth is telling that a fully acceptable P/E would be almost 16 while the Graham formula which I have connected to the real growth of last five years only has a P/E of 10 but is not justified in this case. I like that they spend 13% on R&D and I hope a large part of that goes towards using algae and bacteria for producing longer hydrocarbon chains. Not for running our cars or heating our homes but for being able to produce and use plastics. The yield is almost 5% and they are both flirting with us shareholders as well as that they had poor earnings in 2012 because I find that 55% is a bit too much to pass on to us shareholders.
The oil companies are having crazy revenues but also insane production costs.They showed two good and two bad quarters with only one being negative.

Conclusion: BP is a buy as soon as the litigation is truly over and I of course bought it too early. I see no reason for me to increase since the price has been pretty stable since I bought them.

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