The European investment bank now sees BP as a ‘buy’ whilst it has a ‘hold’ rating for Shell.
Analyst Henry Tarr reckons BP is now focused again on growth and is set for ‘blue skies’ after many years of consolidation and the liabilities tied to the Deepwater Horizon Macondo incident.
The post Macondo recovery and the freeing up of financial resources are central to Berenberg’s bullish view on BP, which with a 665p price target suggests some 24% upside.
“BP will pay USD3.1bn this year in Macondo liabilities, falling to USD2bn in 2019 and USD1bn in 2020, freeing up significant capital for more productive uses,” Tarr said.
He added: “BP has spent more than USD41bn to date on liabilities, and has made net divestments of USD23bn from 2010-17 to help fund them.”
“BP has been able to start growing production again while maintaining the capital discipline and lean cost structures that were put in place over the past decade. The company expects to deliver 5% volume CAGR to 2021, with a focus on brownfield developments, further phases of existing production and low-cost domestic gas.”
Tarr added that BP is set for attractive free cash flow generation, and, that the recent acquisition of BHP Billiton’s Permian basin assets, in the United States, highlights the increasing confidence at management level.
Elsewhere, the outlook is evidently seen to be less attractive for Shell.
“Shell is recovering from the downturn and has delivered solid cash flow in H1 2018,” the analyst said.
“However, if the company is to meet its targets of USD25bn-30bn of FCF by 2020 at USD60/bl (2017 oil prices), it will have to ramp up profitable volumes and exert strong cost control.”
Shell is seen as a ‘hold’ by Berenberg with a price target of 2,800p, compared to a current price of 2,453p.