BP Q4 earnings preview: Where next for BP stock?

BP is set to join its peers by reporting record annual profits, but will shareholder returns continue to lag its peers?

Energy 5

When will BP release Q4 earnings?

BP is scheduled to release fourth quarter and full year results on the morning of Tuesday February 7. They will be released to the market at 0700 GMT.


BP Q4 earnings consensus

BP is forecast to report a 32% year-on-year rise in revenue to $66.76 billion in the fourth quarter. Underlying replacement cost profit – its headline measure – is expected to jump 25% to $5.11 billion.


BP Q4 earnings preview

We will see profits ease in the fourth quarter from the peaks we saw in mid-2022 following the softening in oil prices, weaker refining margins and tougher conditions for its gas trading arm.

Still, BP will join its peers by delivering record annual profits for 2022. If it meets expectations in the fourth quarter, then BP will see annual underlying replacement cost profit more than double from 2021 to $27.72 billion.

BP profits will hit record levels in 2022

(Source: Bloomberg)

BP’s gas division impressed the markets in the previous quarter and the pressure will be on to keep up the momentum after Shell’s comparative business delivered a beat and drove its better-than-expected earnings in the fourth quarter. Analysts believe Gas & Low Carbon Energy will see underlying replacement cost profit come in at $3.0 billion, considerably higher than last year but less than half what was delivered in the third quarter. This is where the biggest potential lies for a surprise, so a beat here could be influential on its bottom-line and how markets react.

Consensus numbers suggest its oil production business will deliver underlying replacement cost profit of $4.3 billion and that its customer-facing unit that sells lubricants and handles its various other businesses is expected to deliver a profit of $2.1 billion. They will both be markedly higher than the year before but will be the weakest quarterly profits seen in 2022.

Operating cashflow is expected to come in at $9.8 billion, some 60% higher than the year before and also up from the previous quarter. That would be more than enough to pay the quarterly dividend worth around $1.1 billion and supplemented by around $2.8 billion of share buybacks.

Notably, BP has lagged rivals including Shell, Exxon Mobil, Chevron and Total in terms of total returns since the start of 2020, according to data from Bloomberg, and that trend could continue. Analysts currently believe the size of any new buyback for the first quarter of 2023 will be smaller than what we saw last year, with forecasts suggesting it will fall below the $2 billion mark following a $2.5 billion buyback in the fourth. A larger tranche would be bullish for the stock.

Although it is generating significant cash, BP has other things to pay for and this is leaving less of a surplus to return to investors. For example, BP has been spending on new ventures, having recently bought US biogas outfit Archaea for over $3.3 billion billion, and has been focused on reducing net debt, which has fallen for 10 consecutive quarters – although we may see this impacted by the $800 million worth of debt it has inherited from that acquisition.

These results will also include an update on its strategy centred on newer forms of energy like hydrogen, biogas and renewables as well as new business avenues like electric vehicle charging.


What to expect from BP in 2023

Analysts believe underlying replacement cost profit will plunge by one-third in 2023 on expectations that oil and gas prices will ease.

Operating cashflow will also fall from the high levels we saw in 2022, although remain considerably higher than what BP has delivered over the years. That should leave BP flush with cash to pay down debt and invest in its business, but investors are primarily focused on how much will be returned to them. Dividends will keep growing this year, but we are expected to see a pullback in the amount spent on repurchasing shares.


Where next for the BP share price?

The monthly chart shows BP shares continue to follow an uptrend that can be traced back to November 2020. It needs to break above the 497.50p ceiling that has capped the stock over the last four months. It is worth noting that we have seen trading volumes for three consecutive months, suggesting it is losing momentum as it struggles to find higher ground.

A move higher would allow it to target 561p level of resistance we saw for the five months to July 2019. Notably, that is in-line with the average target price set by the 26 brokers that cover the stock at 562.19p.

The BP share price has been rising in an uptrend since November 2020

Turning to the daily chart, we can see that 497.50p has proven to be a reliable ceiling for the stock. On the downside, the stock has only briefly fallen below the 100-day moving average during the past six months so this should provide some support at 471p if the stock comes under renewed pressure.

Can the BP share price break above 497.50p?


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