LowIQinvestor Posted February 21, 2013 Share Posted February 21, 2013 Is anyone else buying BP ? Potential catalyst next week... Our analysis concludes that BP is valued at 6 times normalized earnings. Normalized earnings will surface in 2014 or 2015. BP expects that operating cash flow will be around 50% higher by 2014. BP (ADRs) has a 5% dividend yield at today's price of $40.46 Global peers trade around 9.5 PE. True earnings power was being masked by ongoing payments into Gulf Spill Trust Fund. Set to go to trial next week and we believe that proving gross negligence is an extremely high bar. Estimates of BP having to settle for $20B + are not realistic. A settlement in the neighborhood of $10B is more likely and is completely manageable for BP. It could be dragged out in the courts for many years which isn't necessarily a bad thing for BP. Of course the price of crude is something that I have no opinion on and will likely impact this investment. Link to comment Share on other sites More sharing options...
obtuse_investor Posted February 21, 2013 Share Posted February 21, 2013 Interesting-- what about the Sterling? Would you hedge it if going into BP at this point? A nice rundown of their recent legal troubles: http://www.economist.com/news/business/21571463-bad-news-bp-keeps-coming-spills-and-bills Link to comment Share on other sites More sharing options...
plato1976 Posted February 21, 2013 Share Posted February 21, 2013 I hope my SD can quickly realize its value, and then I can buy BP Interesting-- what about the Sterling? Would you hedge it if going into BP at this point? A nice rundown of their recent legal troubles: http://www.economist.com/news/business/21571463-bad-news-bp-keeps-coming-spills-and-bills Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 21, 2013 Author Share Posted February 21, 2013 Interesting-- what about the Sterling? Would you hedge it if going into BP at this point? A nice rundown of their recent legal troubles: http://www.economist.com/news/business/21571463-bad-news-bp-keeps-coming-spills-and-bills We are not hedging against the pound. Just keeping it simple and buying the ADRs. I generally don't hedge against long positions. Link to comment Share on other sites More sharing options...
wachtwoord Posted February 21, 2013 Share Posted February 21, 2013 For hedging it doesn't matter in which currency a stock trades. Two things matter: 1) The different currencies and their ratio in which the company earns its income 2) The different currencies and their ratio in which the company pays its costs BP is a large multinational with diversified income across all regions of the world and all major currencies. There is no point in hedging. Then again if you wanted to buy a British company with income and expenses only in Sterling hedging could make sense. Even if the stock traded in USD on the NYSE for some reason. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 22, 2013 Author Share Posted February 22, 2013 Good point about the currency diversification. On a separate note: I have to think that people are selling BP before the trial (potentially) begins next week. Too much headline risk and uncertainty for the average person. Here is some evidence of that "headline risk" that just crossed my desk. UPDATE: Canaccord Genuity Downgrades BP to Hold on Limited Upside, Long-Term Outlook Canaccord Genuity downgraded BP p.l.c. (NYSE: BP) from Buy to Hold with a reiterated $46.00 price target. Canaccord Genuity noted, "We see cash flow recovering strongly over 2013-15 as production recovers and high-margin volumes come on stream. However, we are less convinced over longer term growth potential. Our current SoP valuation on BP is 570p/share ($54/ADR), 28% above the current share price which is slightly below average for the group. BP's 2014E EV/DACF multiple of 4.4x is slightly below the group average (apart from XOM). The stock offers a 13E prospective dividend yield of 5.4%; this compares well with the US big-caps but is broadly in line with Shell. Apart from a one-off share buyback to offset the Rosneft deal dilution, we forecast buybacks of around $2bn pa in the next few years, but mostly to offset scrip dividend dilution." Link to comment Share on other sites More sharing options...
Mikenhe Posted February 22, 2013 Share Posted February 22, 2013 i bought BP after deepwater horizon on the basis that its huge cash flow would accomadate any problems - and that it had been massively oversold at that point. I think I got in at the mid 30's and out again in a year at mid 40's. anytime I can do a 30% return on a share with that sort of background then I'm happy. I've been looking at them since and I think that they have done an excellent job in preparing financially for any issues - however if they recieved massive fines it may well be someone looking at what they have put aside and then adding 50% on top. plus legal fees etc... 40 a share isn't a bad price point with a 5% div and I think that if they get a reasonable result from deepwater the price will not decrease. It'll go up long term but I think that there are better values out there. As with anything its not always the fundamentals that matter - its market opinion and we all know that isn;t rational. It may well be better to go for some long term options on this one - and maybe some shorter term puts if they get hammered... Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 22, 2013 Author Share Posted February 22, 2013 40 a share isn't a bad price point with a 5% div and I think that if they get a reasonable result from deepwater the price will not decrease. It'll go up long term but I think that there are better values out there. As with anything its not always the fundamentals that matter - its market opinion and we all know that isn;t rational. It may well be better to go for some long term options on this one - and maybe some shorter term puts if they get hammered... That is precisely why we are buyers of BP--- market opinion is diverging from longer term fundamentals. When those two intersect is anyone's guess. We are willing to take some short term pain for a longer term gain... Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 22, 2013 Author Share Posted February 22, 2013 "U.S., States Mull Extending $16 Billion Oil-Spill Settlement Offer to BP -Sources" Much netter than the $22B "estimates" Link to comment Share on other sites More sharing options...
Mikenhe Posted February 22, 2013 Share Posted February 22, 2013 its worth settling. otherwise its years in court over appeals. BP would be better off with the court route... the us, states and the short term shareholders not so much. I had a figure of 20bln in mind. based upon nothing at all!!! might have to take another look now.... Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 22, 2013 Author Share Posted February 22, 2013 $16B is probably just a starting point for negotiations. I don't want BP to just take that offer. BP and long-term shareholders may be better off if they do drag it out in the courts for years. See what happened with Exxon Valdez spill and how that worked out for shareholders Link to comment Share on other sites More sharing options...
muscleman Posted February 23, 2013 Share Posted February 23, 2013 Is anyone else buying BP ? Potential catalyst next week... Our analysis concludes that BP is valued at 6 times normalized earnings. Normalized earnings will surface in 2014 or 2015. BP expects that operating cash flow will be around 50% higher by 2014. BP (ADRs) has a 5% dividend yield at today's price of $40.46 Global peers trade around 9.5 PE. True earnings power was being masked by ongoing payments into Gulf Spill Trust Fund. Set to go to trial next week and we believe that proving gross negligence is an extremely high bar. Estimates of BP having to settle for $20B + are not realistic. A settlement in the neighborhood of $10B is more likely and is completely manageable for BP. It could be dragged out in the courts for many years which isn't necessarily a bad thing for BP. Of course the price of crude is something that I have no opinion on and will likely impact this investment. Sorry I am late to the party. BP definitely looks cheap from price/sales perspective. From their 6-k, the full 2012 year's normalized EPS per ADS is 5.56, making the PE to be 7.5, per Friday's 41.8 closing price. It is cheap, but not something like 6 PE. Could you tell me if you are using this normalized EPS number for the PE? I see that they are ramping up 15 big projects, so it is exciting to see the profit growth. What EPS would you estimate for 2014? Thanks a lot! ;D Link to comment Share on other sites More sharing options...
LowIQinvestor Posted February 28, 2013 Author Share Posted February 28, 2013 Sorry I am late to the party. BP definitely looks cheap from price/sales perspective. From their 6-k, the full 2012 year's normalized EPS per ADS is 5.56, making the PE to be 7.5, per Friday's 41.8 closing price. It is cheap, but not something like 6 PE. Could you tell me if you are using this normalized EPS number for the PE? I see that they are ramping up 15 big projects, so it is exciting to see the profit growth. What EPS would you estimate for 2014? Thanks a lot! ;D Yes, reported EPS were $5.56 for 2012 but that includes about $6B in payments for oil spill liabilities. I think they can get to $6 EPS in 2014 and trade at close to a peer multiple. But I can't imagine a lot of people( mutual funds etc) wanting to buy BP until the trial is over. Too much reputational risk if you buy and it doesn't work out. Hence the discount to IV. Good news is that you get paid 5% a year to take the long view. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted March 18, 2013 Author Share Posted March 18, 2013 WSJ Weekend article ----- "Bob Dudley: Three Years After the Spill, BP Gets Bullish " Highly recommend reading if you are interested in BP. "Many would have guessed that BP would be willing to pay just about any sum to put the Macondo spill behind it. This appeared to have been the company's attitude too, when, in advance of any legal proceeding, it put up a $20 billion trust fund to compensate victims. Lately, though, the company seems to have awakened to political reality. As long as politicians sense BP's willingness to pay, BP will have to keep paying. The company undoubtedly hoped its lean-forward approach would pay dividends by now. Instead it finds itself gently trying to correct a notion that, if BP is doing OK financially, it must mean the legal system hasn't punished BP enough. About all this, though, Mr. Dudley will only tell me that "justice," not "affordability," should be the measure of any final settlement." Link to comment Share on other sites More sharing options...
LowIQinvestor Posted March 22, 2013 Author Share Posted March 22, 2013 BP to Buy Back $8 billion of Shares, Returning its 2003 Investment in TNK-BP to Shareholders: http://www.bp.com/genericarticle.do?categoryId=2012968&contentId=7085356 Good to see they can still execute on the buyback despite all the worries about " gross negligence" Link to comment Share on other sites More sharing options...
muscleman Posted March 22, 2013 Share Posted March 22, 2013 Sorry I am late to the party. BP definitely looks cheap from price/sales perspective. From their 6-k, the full 2012 year's normalized EPS per ADS is 5.56, making the PE to be 7.5, per Friday's 41.8 closing price. It is cheap, but not something like 6 PE. Could you tell me if you are using this normalized EPS number for the PE? I see that they are ramping up 15 big projects, so it is exciting to see the profit growth. What EPS would you estimate for 2014? Thanks a lot! ;D Yes, reported EPS were $5.56 for 2012 but that includes about $6B in payments for oil spill liabilities. I think they can get to $6 EPS in 2014 and trade at close to a peer multiple. But I can't imagine a lot of people( mutual funds etc) wanting to buy BP until the trial is over. Too much reputational risk if you buy and it doesn't work out. Hence the discount to IV. Good news is that you get paid 5% a year to take the long view. So the upside is expected to be around 50%? If the trial is over in 2 years, then you get about 25% annual return including dividends? That is not bad. Link to comment Share on other sites More sharing options...
abcd Posted March 25, 2013 Share Posted March 25, 2013 That was a quick buyback of almost $1.5 b worth in one day. http://www.foxbusiness.com/news/2013/03/25/bp-buys-back-5-million-shares46245p-45680p/ Link to comment Share on other sites More sharing options...
LowIQinvestor Posted April 3, 2013 Author Share Posted April 3, 2013 Thanks for the buyback stat. Certainly a good sign. As for upside on BP ADRs ( I peg fair value at $54 a share based on a forward 9 PE) Downside protection at book value ($38) Link to comment Share on other sites More sharing options...
LowIQinvestor Posted April 30, 2013 Author Share Posted April 30, 2013 Quarterly results out: Pretty solid considering the price of brent and continuing asset disposals. http://www.bp.com/extendedgenericarticle.do?categoryId=2012968&contentId=7085477 If it weren't for the legal uncertainty this stock should be at $52. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted July 25, 2013 Author Share Posted July 25, 2013 BP CEO discussing legal overhang- (can't believe I'm posting a Mad Money link) http://video.cnbc.com/gallery/?video=3000183882&__source=yahoo|headline|quote|video|&par=yahoo It's like watching paint dry but I think long term patience will be rewarded. Thinking about adding after reflecting on Munger's recent comments on price of oil. Link to comment Share on other sites More sharing options...
fareastwarriors Posted July 25, 2013 Share Posted July 25, 2013 BP CEO discussing legal overhang- (can't believe I'm posting a Mad Money link) http://video.cnbc.com/gallery/?video=3000183882&__source=yahoo|headline|quote|video|&par=yahoo It's like watching paint dry but I think long term patience will be rewarded. Thinking about adding after reflecting on Munger's recent comments on price of oil. What was his comment? Link to comment Share on other sites More sharing options...
smreitz Posted July 25, 2013 Share Posted July 25, 2013 BP CEO discussing legal overhang- (can't believe I'm posting a Mad Money link) http://video.cnbc.com/gallery/?video=3000183882&__source=yahoo|headline|quote|video|&par=yahoo It's like watching paint dry but I think long term patience will be rewarded. Thinking about adding after reflecting on Munger's recent comments on price of oil. Great panel discussion. Thanks for posting. Liked Munger's comment that the US should have dug up the earth to (buy) store lots of oil underground in 1930! Of course it was in hindsight, but he does say that not one person spoke up (so) in 1930! Oil independence will never cease to be popular. The other comment he made was that oil price is going one way and that is up, given the finite amount of oil in the ground and the world's dependence on Hydrocarbons. The huge bet by BRK on solar and wind is likely rooted in this fact. Cannot wait to hear Warren/Charlie talk about the investment thesis. UP. Link to comment Share on other sites More sharing options...
LowIQinvestor Posted July 26, 2013 Author Share Posted July 26, 2013 "Oil and gas are absolutely certain to become incredibly short and very high priced. And of course the United States has a problem and China has a worse problem." - Munger Read more: http://www.businessinsider.com/charlie-munger-on-energy-independence-2013-7#ixzz2a9vy1d6Z Link to comment Share on other sites More sharing options...
matjone Posted July 26, 2013 Share Posted July 26, 2013 Makes sense. If we get in another major war we may need that oil to fuel our military. Link to comment Share on other sites More sharing options...
fareastwarriors Posted July 26, 2013 Share Posted July 26, 2013 http://www.businessweek.com/articles/2013-07-26/gulf-oil-spill-fallout-halliburtons-guilty-plea-is-good-news-for-bp#r=rss Gulf Oil Spill Fallout: Halliburton's Guilty Plea Is Good News for BP Link to comment Share on other sites More sharing options...
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