Barclays’ analyst Lydia Rainforth sat with CNBC on Friday to discuss why she thinks BP plc (LON: BP) shares are the best in its class. The investment bank now rates the British multinational at ‘overweight’.
BP’s production could slide 40% over the next ten years
According to the oil and gas equity research analyst, BP’s production could slide 40% over the next ten years. But the cash flow will remain strong from the upstream business as BP transforms from an integrated oil company to an integrated energy company.
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Lydia also highlighted the strength of cash flow from the marketing business that gives sufficient time to BP to turn into a low carbon energy business. On CNBC’s “Worldwide Exchangeâ€, she said:
“Ultimately, the switch to low carbon will be rewarded by the shareholders. We’re looking at a stock that has a five per cent dividend yield and can potentially double that through the process of share buybacks as well. So, for us, the reasons for our big call are very clear.â€
BP’s cash flow is the best in the sector
Earlier this week, BP said it was considering a joint venture with Eni to improve oil and gas production in Angola. British Petroleum’s cash flow is currently the best in the sector. It can support a cash return of 10% through buybacks and dividend payments to shareholders, assuming Brent at $60 a barrel.
“The aggregate cash flow of the traditional units is enough to allow BP to ensure competitive cash returns to shareholders, continue to reduce debt and invest in its low-carbon business,†Lydia added.
The British multinational oil and gas giant commenced share buybacks in April as its first-quarter profit printed significantly above the pre-pandemic levels. At the time, BP also announced to have hit its debt reduction target a year earlier than expected.
BP’s performance in the stock market
BP plc closed the regular session about 0.5% up on Friday. Including the price action, the stock is now exchanging hands at 312.20 pence per share. In comparison, the London-based company had started the year 2021 at a per-share price of a lower 254.50 pence.
BP performed largely downbeat in the stock market last year with an annual decline of a little under 50%. At the time of writing, the oil and gas superpower has a market cap of £62.94 billion.
