Why Shares Of BP Are Up By 4% Today?

BP Video 06.04.21.

BP Reached Its Net Debt Target

Shares of BP gained strong upside momentum after the company stated that it expected to reach its $35 billion net debt target during the first quarter of 2021.

BP noted that it had received around $4.7 billion of disposal proceeds during the first quarter. The company expects that disposal proceeds in 2021 will be “at the top end of the previously announced $4-6 billion range”.

BP also stated that its business performance during the first quarter of 2021 was very strong which allowed the company to reach its debt target.

The market reaction to the news is so strong because BP plans to return at least 60% of surplus cash flow to shareholders when it reaches the net debt target. The company plans to return this cash flow via share buybacks.

What’s Next For BP?

BP stated that it would provide additional information on share buybacks when the company releases its first quarter results on April 27. While shares of BP have moved away from lows at the $15 level that were reached in October 2020, they remain well below pre-pandemic levels.

Meanwhile, the oil market continues to rebound, and WTI oil is trading near the $60 level despite worries about the third wave of the virus in Europe and challenging situation in Brazil and India.

In this light, share buybacks may be seen as a good way to return capital to shareholders as BP would be buying its shares at reasonable levels. Analysts expect that the company will report earnings of $1.82 per share in 2021 and $2.65 per share in 2022, so the stock is trading at a forward P/E of less than 10.

In case oil manages to stay above the psychologically important $60 level, shares of BP will have a good chance to gain additional upside momentum as investors and speculative traders would be attracted by the upcoming share buyback program and cheap valuation.

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