An “update on progress towards net debt target”-titled announcement from BP (BP.), which includes a claim of “earlier than anticipated delivery of disposal proceeds combined with very strong business performance during the first quarter”. This sounds good.
With particularly severance payments, US offshore wind joint venture payment (Q1) and ~$1.2 billion pre-tax annual Gulf of Mexico oil spill payment (Q2), net debt was expected to increase in the first half of 2021. However, net debt at the end of the fourth quarter 2020 was $38.9 billion and BP says that it now expects to have reached its net debt target of $35 billion during the first quarter 2021. That is with circa $4.7 billion of disposal proceeds received during the first quarter and particularly positive “trading, the price environment and resilient operations”. Good news also as “on reaching this net debt target, bp is committed to returning at least 60% of surplus cash flow to shareholders by way of share buybacks, subject to maintaining a strong investment grade credit rating”.
That’s also with a prevailing $0.0525 per share quarterly dividend – most recently equating to 3.7684p per share, and comparing to a now up to circa 300p share price. However, that still suggests a circa 5% dividend yield – and in a struggling for yield, and now more sector bullish, environment we suggest there is further scope for share price gains here. That is also with a target of $25 billion of disposal proceeds between the second half of 2020 and 2025 now underpinned by agreed or completed transactions of around $14.7 billion, with approximately $10 billion of proceeds received and it now expecting 2021 disposal proceeds at the top end of a previously announced $4‑6 billion range.
Ahead of “further information, including in relation to share buybacks, will be provided with BP's first quarter 2021 results, expected to be reported on Tuesday 27 April”, we continue to see quite simple scope for a 350p+ share price - still a more than 4% dividend yield - and the shares are thus still an Income buy at up to 310p.
This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve OUT THIS AFTERNOON and a new shorting piece this week click HERE
Filed under: BP, Zoetic, DS Smith, Ariana Resources, Ferrexpo, N50 website
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