James Gard: Welcome to Morningstar. Making another appearance as stock of the week is oil company BP, which has just reported a sharp rise in annual profits.
Shell and BP’s latest results have intensified calls for the windfall tax regime to be tightened. We’ll swerve the political arguments here – and assume we won’t be having the same debate this time next year if oil and gas prices continue to soften.
From a new investor’s point of view, making decisions based on bumper results can be perilous. We know 2022 was an exceptional year for oil prices and that 2023 will be a harder act to follow.
Annual result seasons is also a good time to look at energy companies’ commitment to carbon targets: BP’s spending on the “green” side of the business, which includes biofuels and hydogen, will match oil and gas investment by the end of the decade. The total “pot” for both will now be be $18 billion by 2030, and that’s up from previous estimates of $16 billion in spending.
But the company has scaled back a bold target to cut emissions 40% by 2030; it’s now committing to a 25% reduction. This is a more ambitious plan than its rivals, but has been seen as a sign of a weakening corporate resolve amid 2022’s myriad wake up calls on energy security, affordability – and political risk.
BP shares are up more than 30% from the same point a year ago. That leaves them close to being fairly valued, according to our analysts. Should investors buy Shell instead? Well, their shares are also fairly valued by our metrics. Oil shares were the place to be last year but longer-term performance has been less exciting – and concerns over the energy transition are not going away.
Dividend wise, BP’s full-year payout will be 11% higher than in 2021 – and shares yield just shy of 4%.
For Morningstar, I’m James Gard.
