Sunday, April 8, 2018

Analysis of BP 2018


Logo of BP 2018

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: 70 countries world wide employing around 74,000 people (they still claim this on their homepage)

P/E: 43.7

Here you can find the previous analysis of BP 2017.

Contrarian analysis of BP 2018 with P/E, P/B, ROE as well as dividend.

The P/E of BP is still too high with 43.7 even though it has "normalized" a little and the P/B is up at 1.5 which is great. Still from Graham this is a no go. The earnings to sales are silly low with only 1% as is the ROE with 3.4%. The book to debt ratio are ok with 0.6.
In the last five years they have seen a massive decline in revenue, -8.5%, per year which is bad and gives us a motivated P/E of around 8 which means that BP is overvalued by the market considering their earnings.
They pay out a very nice dividend of 5.7% which does however correspond to almost 250% of their earnings so at some point they need to get themselves sorted out to keep sustaining these dividends OR make a dividend cut.

Conclusion: Graham clearly says no and I am undecided. Considering the latest oil price increases the future does indeed start to look better for BP but it is something that is completely out of their control and on top of that we do not know if it will remain this high or increase for that matter. It could just as well decrease to previous levels and that will have a massive impact on BPs earnings. Only two things are good and that is P/B and dividends. I will remain as a grumpy shareholder.

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