Here’s why Barclays named BP stock a ‘top pick’

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 Exchange”, 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.”

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.