Key Morningstar Metrics for BP
- : GBX 530Fair Value Estimate
- : ★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
What We Thought of BP’s Earnings
BP BP.‘s second-quarter earnings of USD 5.7 billion increased from USD 2.4 billion the year before, exceeding market expectations, as higher prices and wide refining margins offset lower volumes. New CEO Meg O’Neill laid out her five key priorities in pursuit of a step change in performance.
Why it matters: Like peers, BP is benefiting from disruptions in the Middle East to deliver strong earnings and cash flow. However, it remains in catch-up mode as its performance has trailed peers amid a series of management turnovers and strategic missteps. O’Neill made her and BP’s priorities clear, along with a strong statement about the need to do more.
- The five key priorities are: strengthening the balance sheet, simplifying the portfolio, investing with greater discipline, driving operational excellence, and hardwiring high performance and accountability.
- Progress in the first two is most noticeable. Net debt fell during the quarter, and the USD 14 billion-USD USD 18 billion target is set to be achieved early, by year-end. Management indicated further reductions beyond that. Portfolio simplification is ongoing with numerous announced asset sales and the newly launched sales process for the North Sea and Archaea Energy.
The bottom line: Our no-moat rating and GBX 530/USD 41.60 fair value estimates are unchanged, leaving shares fully valued.
Big picture: Although not a full strategic update, O’Neill made clear where BP’s focus lies. We see the admission of a performance shortfall, particularly operationally, as refreshing.
- The decisions to exit the North Sea demonstrate a lack of sentimentality and focus on returns. Plans to sell Archaea, formerly a keystone of the energy transition strategy, in the wake of the Lightsource BP exit decision, mark a full repudiation of the energy transition strategy that left BP a laggard.
- The priorities are the right ones, but execution will ultimately decide BP’s success. We will be looking at future quarters for further signs of progress on each one.
