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BP downgraded by Berenberg ahead of February’s CEO switch

“We think that the stock will be in a holding pattern through H1 ahead of the cash proceeds that BP will receive for disposals and the new strategy outlook from the incoming CEO," Berenberg's analyst said.

BP PLC - BP downgraded by Berenberg ahead of February’s CEO switch
Bob Dudley steps down in February before departing entirely in March

Berenberg reckons BP PLC’s (LON:BP) share price will be in a “holding pattern” through 2020’s first half, despite the European bank’s expectations that the oil major will deliver solid production growth and cash-boosting asset sales.

BP chief executive Bob Dudley steps down from his role next month to be replaced by Bernard Looney - who currently heads up BP’s oil and natural gas exploration division – ushering in a phase of transition for the company.

Not only are there changes in the boardroom, but, even after years’ of disposals Shell continues to change the composition of its portfolio through deal-making.

Amidst this potentially disruptive period, Berenberg downgrades its rating to ‘hold’ from ‘buy’ whilst it also lowers its price target to 560p from 590p, with the new level implying some 12% of potential upside to the current price of 497p.

READ: BP says "no decision made" on dividend yet

Berenberg analyst Henry Tarr, in a note, said:“we think that the stock will be in a holding pattern through H1 ahead of the cash proceeds that BP will receive for disposals and the new strategy outlook from the incoming CEO.

“In the near term, the focus remains on reducing gearing, which will lower the likelihood of increased shareholder payouts via higher dividends or buybacks.

“We continue to believe that the business is able to deliver strong dividends, combined with steady growth, but we think there is more upside elsewhere in the sector in the near term.”

Tarr added: “Gearing remains high (31.7% at Q3), driven by the acquisition of the BHP US shale assets.

“Impairments also affect the gearing calculations as lower commodity price assumptions are used. The company will likely receive the cash for the disposal of its Alaska assets in Q3 and has not announced details of planned disposals of its US gas assets in Q4.

“We believe that further increases in the dividend are unlikely until gearing is firmly within the 20-30% target range. These disposals will also affect near-term cash generation as the assets, particularly in Alaska, now generate substantial free cash flow.”

Quick facts: BP PLC

Price: 486.1 GBX

LSE:BP.
Market: LSE
Market Cap: £98.57 billion
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