Overstone International Value Fund on BP p.l.c.
Thesis
BP was a detractor as Brent oil fell sharply, but the fund still sees attractive economics at current oil prices. It estimates BP offers a low-double-digit free cash flow yield. A longstanding balance-sheet concern has improved through asset disposals and cash generation, with net debt expected to be cut in half during the year. The long case therefore combines a depressed energy backdrop with improving financial resilience and a high cash yield.
“BP’s balance sheet has long been a concern, but this has now been addressed through disposals and cash generation.”
Key risks
- Lower oil prices can pressure earnings and cash flow
- Balance-sheet leverage has been a longstanding concern