Barclays has reinstated BP (LON:BP) as a top pick in the European oil sector in anticipation of ‘material and sustained’ improvement in the group’s free cash flow. The move followed BP’s first-quarter results yesterday which revealed that the oil major had returned to profit in the first three months of the year.
BP’s share price has lost ground today, having shed 0.70 percent to 446.45p as of 12:32 BST, underperforming the benchmark FTSE 100 index which is currently 0.27 percent worse off at 7,230.39 points. The group’s shares have added more than 21 percent to their value over the past year, but have given up some 12 percent in the year-to-date.
Barclays re-instated BP as a top pick today, pointing to prospects for ‘material and sustained’ improvement in the oil major’s free cash flow. The analysts noted that key to the above, three project start-ups are imminent and momentum in upstream should only improve going into next year, while downstream, there is scope for the market to be positively surprised.
“We continue to see this as an area where market forecasts are likely to prove too conservative and building credibility through detailed disclosure should also build confidence in the wider group aspirations on cash-flow,” the bank’s analysts Lydia Rainforth, Joshua Stone and Danni Li said, as quoted by Sharecast.
The comments come after BP updated investors on its first-quarter performance yesterday unveiling that its underlying replacement cost profit for the first three months of the year had climbed to $1.5 billion, as compared with a $583-million loss in the prior-year period.
Hargreaves Lansdown analyst Nicholas Hyett, however, warned that the good results hinted “at the longer-term challenges facing the group”, particularly the hangover from the 2010 Gulf of Mexico oil spill.
“Demands on the group’s cash from fines and capital expenditure, which is expected to total $15-$17 billion this year, means that BP’s balance sheet remains stretched,” the analyst said, as quoted by Citywire.