When will BP raise its dividend? It’s a question exercising investors after the oil major’s finance chief suggested that it wouldn’t be doing so alongside its full-year results in February, sending its shares down 3.8 per cent on Tuesday (Emily Gosden writes).
Brian Gilvary, speaking as BP reported third-quarter results, said that with a change of chief executive looming, it was “more likely” that a dividend increase would be further off, once it had made more progress with reducing debt levels and after Bernard Looney, its incoming chief executive, had set out his strategy.
Yesterday BP sought to play down Mr Gilvary’s comments, taking the somewhat embarrassing step of clarifying that “no decision has yet been made with respect to the fourth quarter of 2019 or any future dividend”. The shares ticked back up 1.6 per cent.
Whatever the board’s decision on the dividend, it is far from the most important question facing BP. For starters, any dividend increase would likely be an incremental uplift of 0.25 cents per share to the existing 10.25 cents quarterly dividend, which would be welcome for BP investors but hardly transformational.
As Biraj Borkhataria, of RBC Capital Markets, put it: “Does it even matter? If investors were not enticed by a 6.4 per cent yield, we question whether a 6.6 per cent yield would make much difference?”
Much, much more critical to the BP investment case is the question of how Mr Looney’s new strategy will address the existential threat the company faces from climate change. Oil has been at the heart of BP for its century-plus history and today, almost two decades on from its “Beyond Petroleum” rebrand, producing and selling oil and gas still accounts for almost all of its profits, which stood at $10 billion last year.
It does have interests in low-carbon and renewables, notably in Lightsource BP, the solar developer, in some old wind farms and in electric vehicle charging businesses. However, low-carbon projects still account for only $500 million to $750 million of its $16 billion annual capital expenditure, with the rest being ploughed into more hydrocarbons.
To its critics, this continued investment in oil and gas is fundamentally incompatible with the societal shifts away from fossil fuels required to prevent dangerous extremes of global warming. BP disagrees, of course. It says that gas, which accounts for 52 per cent of its output, is part of the climate solution and that trillions of dollars of investment in oil and gas will still be needed to meet demand, even if climate targets are hit.
BP may turn out to be right, but the rising tide of investor and activist disquiet suggests that it isn’t winning the argument — and if it can’t, it will suffer irrespective. “The perception issue has a real impact on stock performance,” Lydia Rainforth, at Barclays, wrote recently. “Winning over sceptical generalists, millennials and Gen Z needs a better approach to communication and ultimately more spending.”
BP also may turn out to be wrong, underestimating the pace of technological and societal change toward green energy — and, if so, it needs to show how it can survive and thrive. Mr Gilvary said this week that he expected Mr Looney to “lean in” to the energy transition, promising an update on its “ambitions” in the first half of next year and a more detailed strategy in the second half.
A common refrain on climate marches this year was that there are “12 years to save the planet”. Mr Looney has 12 months to prove BP can be part of that. Until then, BP faces a period of uncertainty that makes it impossible to tell if its long-term strategy is one worth buying — or selling.
Advice Hold
Why Await all-important strategy update next year
Convatec
Life on the public markets began promisingly enough for Convatec — indeed, its initial public offering in 2016 was the biggest in the UK that year — but the series of stumbles and mis-steps that followed have been painful for investors (Alex Ralph writes). Yesterday, however, there were welcome signs of recovery at the wound care specialist.
In a third-quarter trading update that was ahead of City forecasts, Convatec revealed group revenue up 4.6 per cent on an organic basis to $462.9 million in the three months to September 30, with growth in all its four divisions.
The medical products company was valued at £4.4 billion when it was floated by Nordic Capital and Avista Capital Partners, the private equity firms, but that figure is now about £3.6 billion after a series of profit warnings and operational problems, including disruption caused in a transfer of production of some products from the United States to the Dominican Republic. That, in turn, led to a clearout of the boardroom and the launch of a turnaround plan in February this year, the timing of which meant that Karim Bitar, who started as chief executive at the end of last month, was unlikely to make drastic changes to the new strategy.
Mr Bitar, 54, called the “solid” third-quarter performance a “small step on the significant journey ahead of us as we focus on pivoting to sustainable and profitable growth”. His initial remedy, he said, was to “get closer” to patients, strengthen Convatec’s innovation pipeline and “drive a relentless focus on execution excellence” — an effort no doubt helped by a refinancing of its debt, put in place at the time of its float, “on more favourable terms”.
With the results flattered by weak comparative figures during the same period last year, the company reiterated rather than upgraded its full-year forecasts of organic revenue growth of between 1 per cent and 2.5 per cent and an adjusted earnings before interest and tax of 18 per cent to 20 per cent.
Investors seemed happy enough. Its shares rose 19¾p to 202¾p, up nearly 11 per cent on the day but still some way short of their 2017 peak of 344p.
Advice Buy
Why Update has reinforced growth prospects
