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BP PLC
13-08-2019, 08:46 AM.
Post: #1
BP PLC
Stop wasting time to look at SGX. there are plenty of potential bargains overseas
Local companies like Boustead and MTQ are not worth investing in long term, because they don't have much pricing power compared to major oil
Once the oil major pause CAPEX, these sub-sub con immediately need to tighten belt & shout for help.

BP, Exxon, Chevron could be better choice. Right now they suffer from negative sentiment with trade war
also people are negative about the future of oil due to electric cars. But overall, oil demand still rising due to pop growth



BP PLC - This 6% Yielding Stock Is On Sale

Summary
If you’re willing to swim against the current and go searching for yields in unexpected places, how about considering the energy sector?
ExxonMobil (XOM) and Chevron (CVX) might be the most likely targets in this space but the one name I’m favoring right now is BP (BP).
BP could be an interesting name to add for a modest yield boost.
This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Start your free trial today »
Quote:Don't get trapped by looking at what the price was that you paid for some stock originally. - Richard Thaler
In a recent Lead-Lag Report, I pivoted some of my discussion to dividend income strategies. With investors mostly preferring large-cap growth stocks, dividend stocks and ETFs have been a mixed bag over the past year - the aristocrats have done well but high yielders not so much. With 10-year Treasury yields dropping below 1.7% (and potentially going significantly lower), attention has shifted back to equities in order to find the yields that the fixed income market isn’t providing.
As usual, the utilities, consumer staples and real estate sectors have been the biggest beneficiaries of this rotation. But if you’re willing to swim against the current and go searching for yields in unexpected places, how about considering the energy sector?
Now, before you fall out of your chair, let me make the case.
Yes, investing in the energy sector right now is a risk-laden trade. Crude oil prices are down 20% from their 2019 highs as political tensions remain high, the ongoing trade war and generalized global economic slowdown stoke oil demand fears and crude stockpiles are at above average levels. I generally prefer sector ETFs to individual names since diversification helps eliminate concentration risk from any one company but the energy sector might be the reverse situation. In a struggling sector, you need to instead target individual names that are positioned to come out ahead in order to avoid getting dragged down.
ExxonMobil (XOM) and Chevron (CVX) might be the most likely targets in this space but the one name I’m favoring right now is BP (BP). Its relative valuation compared to its peers and the sector is attractive and its status as a strong free cash flow generator gives its forward yield of 6.6% a surprisingly high degree of safety.
BP’s stock has adequately rewarded investors over the past three years although the past year has been a bit of a disappointment.
[Image: saupload_BX0tu6H4t7txhoYVeO88aeXMxo0Dx-r...thumb1.png]
The company has performed relatively well over the past year and its purchase of BHP’s (BHP) U.S. shale assets for $10.5 billion should be a positive over the longer-term but costly in the short-term. Add that to the remaining costs from the Deepwater Horizon settlement that are still outstanding and you’ve got some pressure on cash flows. With those factors nearly in the rearview mirror, BP may be poised to improve its liquidity even more over the next year.
And it’s all about the cash. The company’s Q2 investor presentation shows that cash flow has been more than sufficient to support capex, dividends and share buybacks.
[Image: saupload_0UaoJ_yLeB8M3BX54buFR5VuonBfgy2...thumb1.png]
Looking at it another way, BP’s rolling 12-month free cash flow per share figure has been solid putting its free cash yield at 5.6% making it one of the more cash-rich companies in the world.
[Image: saupload_6iiCLATEljW-bxp3n2kYoeVK1IYFAil...thumb1.png]
While the company’s dividend yield, its ability to support the yield and clear some short-term expenses off of its books, it’s important to be realistic here. As a total return investment, BP is going to be risky. As mentioned earlier, oil prices are already 20% below their 2019 highs and could easily be heading back to the $30s if the trade war extends indefinitely and economic growth globally continues to slow. In that scenario, BP and other names in the energy sector will likely continue to feel some pain.
But if you’re in retirement, for example, and want to live off of the income produced by your portfolio and not the principal itself, BP could be an interesting name to add for a modest yield boost. You probably don’t want to make BP a significant part of your income-producing portfolio but adding a smaller investment in this well-supported dividend could be a smart play.
Bottom line? BP’s stock is heavily oil dependent and given the current economic and political environment it will likely continue to face headwinds into the foreseeable future. But if you’re looking at the company’s balance sheet and its ability to pay the quarterly dividend into the future, there’s a lot to like here. One thing I would like to see, however, is BP transform into a dividend grower instead of a dividend payer. The company has increased its quarterly dividend only once since 2015. The yield is nice but not getting a regular pay raise is a little disappointing.
I also like the fact that the stock is trading at just 10 times 2020 earnings compared to 14 for both ExxonMobil and Chevron. This kind of valuation provides a degree of downside protection should the sector and the economy turn south, something that is a very real possibility over the next year.

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13-08-2019, 12:37 PM.
Post: #2
RE: BP PLC
(13-08-2019, 08:46 AM)blackclock Wrote: Stop wasting time to look at SGX. there are plenty of potential bargains overseas
Local companies like Boustead and MTQ are not worth investing in long term, because they don't have much pricing power compared to major oil
Once the oil major pause CAPEX, these sub-sub con immediately need to tighten belt & shout for help.

BP, Exxon, Chevron could be better choice. Right now they suffer from negative sentiment with trade war
also people are negative about the future of oil due to electric cars. But overall, oil demand still rising due to pop growth
i have little knowledge about the oil and gas sector so i shall not comment much. But i do agree that the large cap companies tend to track oil prices better. But do not forget that because stocks like boustead and mtq are more illiquid, it takes little effort to push it up. In fact, some people will go to different forums to talk it up and sometimes it seems to work, the higher prices pull in more people and in a short while, it shoots up. This "wise" group of people will then sell to the unsuspecting and naive investors who join the party last

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13-08-2019, 04:18 PM.
Post: #3
RE: BP PLC
(13-08-2019, 12:37 PM)money Wrote: i have little knowledge about the oil and gas sector so i shall not comment much. But i do agree that the large cap companies tend to track oil prices better. But do not forget that because stocks like boustead and mtq are more illiquid, it takes little effort to push it up. In fact, some people will go to different forums to talk it up and sometimes it seems to work, the higher prices pull in more people and in a short while, it shoots up. This "wise" group of people will then sell to the unsuspecting and naive investors who join the party last

money thank you for sharing this. Now I understand why there are certain post promoting certain company.
Usually those post make no sense, with quick & baseless conclusion that a company is doing well. Just because the cash flow improves for 1 quarter.

money, you must understand this
Oil major don't just track oil price. They SET the oil price

They are so huge that they can get government to do whatever they want
This is what Warren Buffett called moat. And I don't understand why I need to create BP thread in this forum
Sorry to be direct, but I hope you guys make money as well

I am not here to promote BP. Just trying to show all that there are so many BETTER company out there
Our local sub con are not worth your time.

Once oil major pause (not stop), or slow down their CAPEX. Our subcon immediately retrench and give profit warning
If the situation doesn't improve. These sub cons go belly up
What's the point? Why not buy into PRICE SETTERS and sleep soundly? knowing that those Pension fund will shoot (watch over) the oil major for you.

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13-08-2019, 06:42 PM. (This post was last modified: 14-08-2019, 07:46 PM by dreamybear.)
Post: #4
RE: BP PLC
I roughly had the same general idea, instead of investing in the likes of local stocks e.g. Keppel Corp, Ezion, Vallianz, MTQ, etc, why not go "a step further up" and invest directly in renowned oil majors, whenever they are "reasonably" priced.

However, like other Big Oil, BP to me is a super large scale and complicated business. In its AR, BP listed its major operations as :
- Finding oil and gas
- Developing / Extracting oil and gas  
- Transporting & Trading
- Manufacturing and marketing fuels and products
- Generating renewable energy
- Venturing

Given its worldwide operations, it is also subjected to political risks.

But how do we value oil majors ? P/B, P/E, Price to Cashflow ? (Ref : https://www.reuters.com/finance/stocks/f...ights/BP.L)
Because of its various income streams/investment/divestment, I can't forecast next year earnings.   Sad Huh

In the past few years, its share price has been stagnant, though it gives quite generous dividends. Do note however that it has a scrip dividend program which may dilute existing shareholders. (Ref : https://www.bp.com/en/global/corporate/i...idend.html)

Given its scale, I think BP may be more suitable for a basic investor like me(for dividends & country/currency diversification), and may not be that suited to those hardcore value investors who analyze businesses very deeply.

*vested in BP(ADR) since 2013*

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14-08-2019, 11:04 AM. (This post was last modified: 14-08-2019, 11:23 AM by blackclock.)
Post: #5
RE: BP PLC
dreamy,

I try to answer whatever I know. Kindly correct me if I got the info wrong

MARKET CYCLE RISK
IMHO, risk of oil major is WAY WAY less than Keppel (main-con), MTQ (sub-con), Ezra (sub-sub con ?)
The reason is because they have first hand info on the trend forward. Usually, they're prepared for sudden events.
So, we reduce Market Cycle risk here.


EXPLORATION RISK
Find oil & gas can be expensive, when it's done offshore.
Right now, US has breakthrough in Shale oil. So they have lower cost for exploration
Fracking is harmful to environment, but good for oil company. They can just turn ON the tap, when market is good
Turn it off when market sink


TRADING
I think OPEC is controlled by US.
A lot of big countries depend on oil to fund their economy.
So, the big boys will SET the price & make it lucrative for themselves.


COST PRICE (per barrel)
Shale oil cost around US $35
(cost still dropping with better tech, land drill is cheap. I think it's $150k per drill)

Deepwater oil cost US$70
(big oil hate deepwater, because they got to spend $2b CAPEX to get the rig from Keppel)

Saudi oil cost around $10
Even they complain $50 oil is lousy price, they still make 4X.
What business on earth you can sell at 4X cost price, in such huge volume?



TRANSPORT
Usually done by pipe on land, which is cheap
It's expensive for deepwater extraction, because you need to use Ships to carry the oil

PROCESSING
Usually big oil has 2 division, Upstream & Downstream
Upstream will get oil, downstream process oil
So they complement each other during oil cycle. Oil price high, upstream gain, downstream suffer. vice versa

RENEWABLE
No impact for now. Electric car is too small proportion
Probably will have impact 10 years later.

POLITICAL RISK
When you have 800 military base overseas, what is political risk?
You decide everything. Peace or war.

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14-08-2019, 07:45 PM. (This post was last modified: 14-08-2019, 10:47 PM by dreamybear.)
Post: #6
RE: BP PLC
Thanks very much, blackclock, for your inputs. I have some comments but just to let you know I am unlikely to be able to spend further time on this thread/counter as the scale is really beyond me.

I think the "trick" in investing into MNC mega companies like BP is to invest as early as possible, and then depend on the rule of 72 : at 6% dividend yield, it takes abt 12 years to double the original investment. Even if it manages to return close to 1.5x of my original investment in 6-7 years, I am already satisfied, rather than aiming for multi-baggers for such companies.

However, nothing lasts forever, much like SPH which used to give super dividends in the gd old "glorious" days, we must be ever mindful of changing tides(& nowadays disruptors).

Trading
I think its trading involves more than the oil price, BP employs derivatives traders too, so I am not sure whether there are things like counterparty risks, etc. "We trade a varied range of products including crude oil, natural gas, liquefied natural gas, power and currencies as well trading physical commodities. We are active in the financial markets, and provide energy price risk management and hedging services." (https://www.bp.com/en/global/bp-global-e...we-do.html)

Transport
BP also does -
Shipping : https://www.bp.com/en/global/bp-shipping.html
Air Services https://www.bp.com/en_au/australia/produ...vices.html

Renewables
Besides electric cars, BP is involved in solar projects, wind farms, biofuels, biopower ...

Political
I am not sure whether the UK has so many overseas military bases like the US, but by political, I meant issues like :
https://www.reuters.com/article/bp-vietn...4420070613
https://www.csmonitor.com/Environment/En...l-conflict

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15-08-2019, 09:03 AM.
Post: #7
RE: BP PLC
Dreamy,

Thanks for your info
BP's owner is half US, half UK
US & UK are strong allies, called Five eye alliance. So BP is semi-US

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