Stock of the day 24/07/2015 – BP PLC

After a US dominant earnings season for the past fortnight, next week brings with it some British big-hitters, including the beleaguered BP.

The company announces its second quarter earnings on Tuesday.

Of course, the dominant story for the oil sector, as in the mining sector, has been the continued softness of commodities. In fact, Brent Crude hit a 3 month low this Friday, with the triple-threat pressures of an impending (but when?!?) US rate hike, the Chinese market instability AND the Chinese economic slowdown all creating a nightmarish July for the commodity markets. Add onto this the oil-glut (and linked fracking) fears that truly ramped up in mid-2014, and there is a toxic aura around the global commodity sector at the moment.

There have, however, been points where BP has managed to navigate from the magnetic pull of the sector’s bearish trading. BP had already touched a 3 and a half year low of £3.64 last December, so its 2015 nadir of £3.77 wasn’t as bad as it could have been. In fact, this mid-January low gave way to a surge in price for BP, taking it to a 4 month high of £4.59 near the start of February.


(Source: IT-Finance.com 24/07/2015)

This growth was largely relation to the announcement that its Deepwater Horizon fine would be capped at $13.8 billion; a partial victory for a company that could have had to (and eventually did) face a larger penalty. The company’s fourth quarter earnings also played their part, and the fact that they weren’t as dismal as they could have been helped BP coast around that £4.60 mark throughout the rest of February and the start of March.

A wobble in March, sending the stock back down to £4.14, was soon overcome, and approaching the end of April the stock was at a 2015 peak, and 8 month high, of £4.85. However, the announcement of BP’s first quarter results set off a change of losses that it hasn’t been able to stall in the intervening months, as underlying replacement cost profit fell by 19% to $2.58 billion year-on-year. May and June saw only a few days of interruption in BP’s long-term decline, and with July beset with the aforementioned Chinese market instability the stock has been dragged down to a current trading price, and 6 month low, of £4.01 (IT-Finance.com, 24/07/2015).

Interestingly, the biggest spike BP has had in misery-filled July came off the back of what is almost empirically bad news. The stock jumped over 4% when it was announced that the company would pay a record fine of $18.7 billion over 18 years for the Deepwater Horizon oil spill. Investors were seemingly just happy that the uncertainty over the issue was over; better the devil you know than the humungous fine you don’t. Regardless of investors’ reactions, however, that mega-fine will have important ramifications for the company going forward as it tries to battle the soft commodity landscape in order to mitigate the losses it will incur from its hefty penalty.

BP has a consensus rating of ‘hold’ with an average target price of £4.54.