Friday, February 5, 2016

Analysis of BP 2016

BP, a British oil giant

ISIN GB0007980591 | WKN 850517 

Business: A British oil giant. They are divided into two business units which are: Upstream (extracting gas and oil) and Downstream (fuels, lubricants and petrochemicals). They currently have five brands: BP(oil and gas), Aral (gas stations where I buy all my petrol), Castrol (lubricants), ampm (convenience stores) and Wild Bean Café (cafés). 

Active: 80 countries world wide employing around 84,000 people (they still claim this on their homepage)

P/E: -14.2 (P/E5: 7.9)

Here you can find the previous analysis of BP 2015.

contrarian values of P/E, P/B, ROE as well as dividend for BP

Comment: Due to that BP ended up with a negative result for 2015 many of the values in this analysis makes little sense but out of formality it will still be done and who knows when I go back to this many years from now I might sit and laugh at how cheap I could buy BP during this period of distress.

The P/E of BP is awful with -14.2 due to losses (the P/E5 is however 7.9) but the P/B is excellent with 1.0. Still, due to the losses, it is a no go for Graham. Earnings to sales are of course bad with -3% as goes for the ROE as well with its -6.7%. The book to debt ratio is so, so with 0.6 and the trend is unfortunately falling which is bad.
In the last five years they have had an awful yearly revenue loss of -10% (the big, big chunk of that revenue loss was in 2015 due to decreased oil price) which then gives a motivated P/E of 8 which means that BP is fairly valued today on the market compared to the P/E5.
They pay an excellent dividend of 7.4% which unfortunately corresponds to even slightly more than what they had in losses during the year which means this is not sustainable in the long run and BP better improve their earnings quickly or they will have to decrease or cut the dividend.

Conclusion: Graham says no and so do I. The P/E, ROE and how much of their earnings that they pay out in dividend is awful as is their yearly revenue growth rate. The companies with only upstream will wither and die, the companies with both will survive and the companies with only downstream will have excellent time as long as the oil price remains this low. Since I am already a shareholder in BP I will remain as such and might even increase my position. This analysis did not convince me that I should sell but I also see no reason for someone to step in as a new shareholder in BP as long as the supply of oil this greatly overshoots the demand. I would dig out the pure downstream companies if I want to profit from this decreased oil price and believe it to remain low for a longer period of time.

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