Analysis of British Petroleum (BP) 2014

Company: British Petroleum

Business:  A British energy company that are dealing with mainly oil both upstream (extracting it from the earth) and downstream (making all kind of chemicals that are needed for polymer production etc.). They are currently also a shareholder in the Russian Rosneft since they sold off the TNK-BP consortium to Rosneft.

Active in: BP is present in every continent in the world either with oil extraction, chemical production or sale.

 P/E: 6.3


For the old and very ugly previous contrarian analysis please look here. I will try to make those old publications looking slightly better when I find the time for it.

The P/E for BP is great with 6.3 and the P/B is acceptable but not more with 1.2 this does however still give us a clear buy signal from Graham. The earnings to sales are fully ok with 6% and the ROE is great with 18.1%. The book to debt ratio is also ok with 0.7. In the last six years BP has had a growth that correspond to 0.6% per year which is not so good and this then gives us a motivated P/E of 8 to 11 which means that the shares are undervalued on the market today. However, if we exclude the non operating profit we would end up with almost a double P/E for BP and the shares would be fairly valued by the market. They spend a small amount of money on research that represents almost 15% of their earnings which is %-age wise not a large increase form last year but in real numbers they have doubled their spending on research and development and this I find great! They pay a very nice dividend of 4.7% which represents only 30% of their earnings which means it is still ok to keep but beware of that they have sugared their earnings from the TNK-BP sale.

Conclusion: Graham says that it is a buy but I am more sceptical to that. I see no reason to step into BP today especially since there are many other oil companies that are looking much better and paying much better dividends. The litigations are still not over in the US. Since I already have the shares I will keep them but they will just float around and give me dividend. In the near future the share price will probably increase a bit more due to the share buy-back but that is nothing I intend to try to profit from and see no reason for even trying to do so.

If this analysis is outdated then you can request a new one.