Broker snap: BP results good but not that good, Investec says

30th Oct 2013 10:13

"The stock market seems to be gradually bringing these unruly oil majors to heel", begins Wednesday's research note from Investec on BP's third quarter results out the previous day which, it adds, "where good - but not that good". The broker highlights how the company's quarterly net profits, which rose by 17%, were flattered by a flurry of extraordinary items. If not for those then the underling result was essentially in line, the broker went on to explain. In a more positive vein, cash-flow is described as on track, if working capital is excluded. Nine-month cash-flow before working capital annualises to $28bn (at $108/barrel Brent). So BP looks to be on track to achieve its target of $30-31bn in 2014, at $100/barrel but at a higher US gas price ($5/million cubic feet). This would cover the projected capital expenditures ($24-25bn) and the dividend ($6bn).However, and as regards to the company's new asset disposal programme, the analysts note that the new target is only a modest $3bn per annum higher than BP's existing guidance ($2-3bn per annum).Furthermore, the free cash-flow calculation also excludes the likelihood of additional business opportunities over and above organic capital expenditures. Addionally, the Macondo incident remains unresolved and it is likely to remain they say.Lastly, BP trades on a sector-average price-to-earnings multiple of 10 times and a sector-average dividend yield of 5.0%. So while their price-to-earnings multiple based price target rises to 460p (from 440p) on improved clarity, they have decided to retain their 'hold' recommendation.AB