The BP (LSE:BP) share price has fallen another 7% since 4 July, drawing it down a full 15% since this year’s high in April. Now near it’s lowest point in over a year, I think it’s time to look elsewhere for energy investments.
But first, what’s happening with BP?
On Tuesday this week, it released a trading update warning of weaker-than-expected profit for Q2 of 2024. This is reportedly due to “lower realised refining margins” that are likely to impact earnings. On top of that, oil trading results are also expected to fall.
This all comes as a bit of a surprise, considering the company was doing so well in the first quarter. BP was one of my best-performing stocks in March and April, gaining almost 20%. Talk of aggressive aims to reduce emmissions piqued my interest — all while Shell was threatening to up roots to the US. Now it seems it was all for naught.
Earlier this month, CEO Murray Auchincloss announced cut backs on unprofitable renewable initiatives to focus on increasing shareholder returns. But with the broader European oil industry in decline, it might be too little too late.
So with my faith in BP shaken, I’m considering whether to increase my interest in renewable energy stocks.
The gas giant going solar
One energy stock that’s caught my attention lately is British Gas parent company Centrica (LSE: CNA). In April this year, it acquired two solar plants in the West Country as part of a £4bn renewable energy investment drive. The combined capacity of the two plants could power up to 7,800 homes.
Then in June, it upped the ante, backing a £300m project aimed at using cooled air to generate electricity. The new concept stores compressed air as liquid that can then be heated and converted back to gas for energy.
Impressive numbers
On the financial side, Centrica’s trailing price-to-earnings (P/E) ratio of 1.8 is astounding. The average among competitors is over 30! That suggests the current £1.40 share price is low. But looking ahead, a forecast 74% decline in earnings threatens a forward P/E ratio of 7.5. That’s still low — but why are earnings forecast to fall so much?
The expected loss follows an unusually high earnings spike in 2022 that saw net income increase from £-782m to £4bn. Naturally, that level of performance is unsustainable but impressive nonetheless.
So while earnings and revenue may drop in the coming year, overall I like the company’s direction. It has a solid balance sheet with sufficient debt coverage and high cash flows. There remains much debate about the profitability of renewable energy. At present, it’s more of an ethical choice than a purely financial one. But it’s one I’d like to see succeed and if I net some returns in the process, that’s a win-win for me.
I’ve already begun rebalancing my energy portfolio toward renewable stocks like Ørsted and now Centrica is the next on my list. Whether of not I hang on to my BP shares remains to be decided.
