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Houston Chronicle: BP posts profit on low end of forecasts

Houston Chronicle: BP posts profit on low end of forecasts

“BP shares have still outperformed Shell since the start of 2004”: “BP… a better-run company”

Reuters News Service

27 July 04

LONDON – Oil giant BP reported second-quarter profit at the bottom end of forecasts today, knocking its shares, but investors said the stock remained underpinned by record oil prices and BP’s share buy-back plan.

The world’s second-biggest oil group, which has outshone scandal-hit rival Royal Dutch/Shell this year, said pro-forma net profit for the second quarter rose 23 percent from a year ago to $3.908 billion.

BP’s earnings were boosted by oil prices that have soared amid political tension in the Middle East, and by rising production at its new Russian venture.

“This has been another strong performance against the backdrop of a robust trading environment,” Chief Executive John Browne said in a statement.

A range of analyst forecasts had given an average forecast of $4.17 billion, and the stock fell 1.2 percent in afternoon trade to 484 pence.

“BP’s numbers appeared slightly disappointing, but it remains a very strong performance,” said Investec analyst Bruce Evers, who has a “buy” rating on the stock.

BP is the first of the world’s top three oil companies to report second-quarter results. Global leader Exxon Mobil and Shell, the world’s third-largest oil group, report later this week.

Stockbroking firm Charles Stanley said BP traded at a prospective price/earnings ratio of about 13.5, a premium of about 15 percent to Shell but a discount of 10 percent to Exxon.

Shell’s statement in January that it had overbooked oil and gas reserves by 20 percent stunned financial markets, yet record oil prices and bumper profits by top oil companies have kept the sector popular.

BP said it had achieved a record half-year result, although second-quarter profit was below the first-quarter figure of $4.717 billion. Its pro-forma results exclude the effect of amortisation linked with acquisitions.

“It’s important to have these big oil stocks in your portfolio to protect against a deterioration in the global economy if oil prices rise further,” said Colin Morton, fund manager at Rensburg Investment Management.

BP said it would increase its quarterly dividend to 7.10 cents from 6.75 cents, and added it would continue the share buy-back.

Analysts said they were encouraged by the company’s dividend yield above 3 percent.

Colin McLean, fund manager at SVM Asset Management, said the dividend yield was an attractive feature of oil stocks.

“BP’s pretty attractive in terms of its yield. In the current environment of market uncertainty, people will focus on these defensive stocks,” he said.

BP added it would raise its capital expenditure by 4 percent to around $14 billion for 2004. It added that plans for a possible flotation of the olefins and derivatives part of its chemical division remained on track for the second half of 2005.

Shell has also started a share buy-back programme similar to BP, helping the Anglo-Dutch group recover some of its reputation after its reserves scandal.

Yet BP shares have still outperformed Shell since the start of 2004. Some investors said that while Shell looked more attractive on valuation grounds, BP was a better-run company.

“I would marginally prefer Shell on valuation grounds, but BP has proven to be the better company in terms of its operating performance,” said Cavendish Asset Management fund manager Paul Mumford.

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