This report is not a personal recommendation and does not take into account your personal circumstances or appetite for risk.
But has oil got further to fall? Unlikely in our view. Is it set for any kind of recovery? Perhaps not to where it was in the summer of 2014, but even if US Light Crude does sink into the $30s we’d expect that to be a brief move while the outlook for Brent Crude, given the depletion of and increasing extraction costs in theNorth Sea fields, could keep its price well above $40.
The oil majors are still reporting billions in profits, despite the price of crude oil being down by almost 60%. Since helping the UK 100 to all-time highs in April they have announced major restructuring programmes to cut costs. If they are still making profits in these supposed ‘bad’ times, how might they fare withlower costs when the oil price recovers? Surely things can only get better from here. The important question is: how long will it take?
Income seekers are surely going to be eyeing many of these shares at current, heavily discounted levels. Buying pressure drives prices higher, while we’ve seen oil prices move by 5% or more on many occasions, each time causing Oil & Gas stocks to move considerably. While we wouldn’t expect any of the UK Index oil companies to regain their boom-time highs in the current conditions, there’s still plenty of scope for 5%, 10%, even 15% upside. A conservative outlook of 5% capital gains plus 7% income yield makes for a potentially pretty good return for a year’s investment.
Many investors look solely for capital gains – buying a stock expecting the price to rise with a view to selling at a profit. However the longer term investor may also look for a good dividend yieldthat can both offset losses if the share price falls and even bring a profit if the share price remains flat. While a full recovery in the oil price might see the biggest fallers in this class regain prior highs, the more likely scenario is that the oil price moves in a range between $40 and $50 for the foreseeable future, as markets plough their way through burgeoning global stockpiles. The investor can therefore make an informed decision based on his / her appetite for risk.
Price change since April UK Index highs: -36%
BP. closing prices, weekly
Will the price bounce up towards 400p or will it fall beneath lows of 300p?
Projected dividend yield: 7.7% (14 Sept)
Broker Consensus: 30% Buy, 53% Hold, 18% Sell
Most Bullish: Barclays, overweight, Target 600p, +78% (21 Aug)
Consensus: Target 420p, +24% (14 Sept)
Most Bearish: Day by Day, sell, TP 297p, -12% (7 Sept)
NB: All pricing and consensus data from Bloomberg on 14 Sept; Consensus breakdown available on request
This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.
Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research
Comments are closed.