BP half-year results: here’s what you need to know

BP plc (LON: BP) has reported a sharp increase in half-year profits today. Here’s what you need to know to help you decide whether to invest or not.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Oil giant BP (LSE: BP) has released half-year 2018 results this morning, reporting a sharp increase in profits. Here’s a closer look at the numbers as well as an analysis of the investment case.

Profits and cash flow 

For the six months, underlying replacement cost profit (BP’s preferred measure of profits) came in at $5,408m, up 146% on last year’s figure of $2,194m. Underlying replacement cost profit per ordinary share was 27.1 cents, up from 11.2 cents last year.

Excluding post-tax amounts related to the Gulf of Mexico oil spill, operating cash flow for the period came in at $12.4bn, compared with $11.3bn for the same period last year.

Dividend and buybacks

Great news for dividend investors – BP has hiked its quarterly dividend from 10 cents per share to 10.25 cents per share. This is the first rise since the third quarter of 2014.

BP’s share buyback programme also continued during the first half of the year, with 29m shares bought back at a cost of $200m.

Net debt

Net debt at 30 June was $39.3bn, versus $39.8bn a year ago. The group advised that it expects gearing to remain within the target band of 20%-30% during the second half of 2018.

Management statement

Chief Executive Bob Dudley was upbeat about the group’s performance and prospects, saying: “We continue to make steady progress against our strategy and plans, delivering another quarter of strong operational and financial performance. We brought two more major projects online, high-graded our portfolio through acquisitions such as BHP’s US onshore assets and invested in a low-carbon future with the creation of BP Chargemaster.” He added that the “momentum and the strength of our financial frame” were behind the dividend rise and that “this reflects not just our commitment to growing distributions to shareholders but our confidence in the future.”

BP: buy, sell or hold?

Today’s numbers look good and the oil major is clearly benefiting from the rise in oil prices over the last 12 months. It appears that the market is happy with the numbers, as the stock is up this morning. Yet after a 25% share price gain over the last year, is it too late to buy BP now?

Personally, I don’t think it is. At the current share price, I believe the stock could still offer upside potential. 

In recent months, City analysts have upgraded their earnings forecasts for BP significantly, which is a bullish sign. For example, when I covered the stock back in April, the consensus earnings estimate for FY2018 was 46 cents per share. Today, the consensus figure is 56 cents per share, placing the stock on a forward P/E of just 13.5, which doesn’t look stretched.

At the same time, brokers have been upgrading their price targets for BP recently. In July alone, Barclays raised its target price to 705p from 690p, JP Morgan raised its target price to 650p from 600p and Credit Suisse raised its target price to 640p from 610p. If these brokers are right, there could be more gains on the horizon.

I also think the dividend increase is fantastic news and could provide further upwards share price momentum. Assuming BP continues to pay out 10.25 cents per share for the third and fourth quarters, the prospective yield is still high at 5.4%.

Weighing up all these factors, I think BP shares continue to offer appeal.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »