BP stock falls behind Shell as investors shy away from green energy

BP shares have slumped 12% since the end of March, while Shell has risen 3.4%

bp

London’s old-school oil stocks are no longer moving in tandem, as BP Plc underperforms Shell Plc due to concerns over the former’s green-energy transition and the outlook for earnings and shareholder payouts.

August is set to mark the fifth-straight month that BP shares have trailed those of its larger rival, following a trio of analyst downgrades, underwhelming earnings and an impairment linked to a refinery in Germany. BP shares have slumped 12 per cent since the end of March, while Shell has risen 3.4 per cent.

BP still depends overwhelmingly on oil and gas for the profits that fund its dividend and share buybacks. Yet the company has been shifting toward low-carbon businesses such as offshore wind at a time when those operations aren’t providing the kind of returns that investors want. Shell, by contrast, has scaled back on its plans to cut CO2 emissions and invest in renewable power generation.

“The differences in these strategies is driving a preference for Shell over BP,” said Allen Good, an analyst at Morningstar Investment Services who cut his rating on BP to hold from buy this month. The company’s approach to the sustainable-energy transition means earnings and capital returns are uncertain, he said.

BP declined to comment on the stock performance.

Another factor in the relative stock moves is BP’s earnings growth and its ability to reduce its indebtedness, said Biraj Borkhataria, head of European energy research at RBC Europe Ltd.

“BP’s underperformance versus Shell is primarily related to weaker earnings momentum,” he said. “BP has had a number of operational issues and has de-leveraged much more slowly than Shell over the last year.”

Borkhataria cut his rating on BP to sector perform from outperform this month, saying the company’s balance sheet needed work.

Investors punish BP with a lower valuation, pricing the stock at 7.2 times estimated earnings for the next 12 months versus Shell’s 7.8 times, in part out of concern that the company may not be able to afford the share repurchases that investors expect.

BP also trades at a discount by other measures, such as cash flow and dividend yield, according to HSBC Holdings Plc, which also downgraded BP this month.

“This is for a good reason in our view, namely the unfunded nature of BP’s buyback, downside risks to its Ebitda guidance and expected decline in oil and gas output beyond 2025,” said HSBC analyst Kim Fustier.

“Unless this changes, we do not expect BP’s discount to peers to narrow,” Fustier added.

With assistance from William Mathis

Bloomberg.com

Take the Survey at https://survey.energynewsbeat.com/

1031 Exchange E-Book

Crude Oil, LNG, Jet Fuel price quote

ENB Top News 
ENB
Energy Dashboard
ENB Podcast
ENB Substack

About Stu Turley 4118 Articles
Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor.   He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage, and is the Co-Host of the energy news video and Podcast Energy News Beat. Energy should be used to elevate humanity out of poverty. Let's use all forms of energy with the least impact on the environment while being sustainable without printing money. Stu is also a co-host on the 3 Podcasters Walk into A Bar podcast with David Blackmon, and Rey Trevino. Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.