Monday 20 April 2020

Analysis of BP 2020

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: 79 countries world wide employing around 70,100 people

P/E: 19.48

Here you can find the previous analysis of BP 2018.

With significant drop in share price due to A. Pandemic and B. Oil price the P/E of BP is still  too high with 19.5 even though it has "normalized" a little and the P/B is at 0.8 which is great. This actually gibes a go from Graham. The earnings to sales are silly low with only 2% as is the ROE with 4.3%. The book to debt ratio is not so good with 0.5.
In the last five years they have actually seen and increase in their revenue of 4.6%, per year which is good and gives us a motivated P/E of around 15 to 17 which means that BP is still slightly overvalued by the market considering their earnings.
They pay out a dividend of 11.1% which does however correspond to almost 215% of their earnings so unless they increase their earnings they really should reduce this instead of taking onboard more debt as they have been doing in the last five years... but I understand any company taking on debt when it is almost for free as it has been for oh, so many years now.

Future: The oil and gas industry is a dying breed and BP have started to be more involved in sustainable options such as biofuel, wind etc. Are they enough on the ball? I honestly do not know.

Conclusion: Graham says yes to BP but I am uncertain. I've always enjoyed the dividends but the debt start to worry me more and more for each passing year as does the future for oil and gas companies, a future which has always been clear, but is getting closer for each passing year. I will remain as a more cautious shareholder from now on.

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