BP perfects high-octane recipe

BP is fast becoming an example of how to turn a basket-case around. Three years ago, nobody had a good word to say about a company that was overspending, not generating enough cash, looking at the oil price through rose-tinted spectacles and distributing too great a share of profits to shareholders.

Since then, Sir David Simon, and latterly new chief executive John Browne, have worked wonders, cutting debt, improving productivity and, it has to be said, riding a bit of luck. Their good work has been reflected by a share price that has outperformed the market by 65 per cent since August 1992 but arguably has still to reflect BP's bright growth prospects.

Half-time figures yesterday showed that not everything is going the company's way. Refining margins remain very tight, although well above the abnormally low returns achieved in the first quarter. Capacity continues to come on stream too fast, undoing the helpful contribution from rising volumes.

The oil price, too, while better on average than a year ago, and higher than in the first quarter, has fallen from its recent peak as the supply of crude has outstripped firm product demand. It is currently at the lower end of BP's planning range of between $16 and $18 a barrel.

Everything else, however, looks as good as it has for a long while, and the targets set three years ago after the departure of Bob Horton look like being achieved well ahead of schedule.

Rolling four-quarter profits have been rising every quarter since the first half of 1992, despite a steady decline in the oil price during the 1990s. In the upstream exploration and production division, net income per barrel of oil is now well ahead of BP's peers; return on assets in the capital-intensive refining and marketing operations is in line with the pack; and in chemicals, where BP has underperformed for years, it is now performing as well as its best competitors.

All those factors created the conditions for a much bigger rise in dividend than the market had been expecting. At 4p a quarter, the payout is now close to the 4.2p BP was paying before the dividend was halved three years ago.

Despite all the good news, BP still trades on a discount to its peers on a number of valuation measures. It has a lower price-to-cashflow ratio than the other integrated energy companies, trades on a lower p/e ratio and, thanks to the rising payout, is fast catching up in terms of yield. The shares have had a fantastic run over three years but have not yet run out of steam.

Wilson warning

signals the end

Tarmac pulling out of housing was bad enough, but a profits warning from Wilson Bowden, perhaps the sector's best performer, is the clearest message so far that the industry has ground to a halt.

It is tempting to suggest that yesterday's statement was another piece of characteristic gloom from chairman David Wilson, but his comments were unequivocal. Hindsight is a wonderful thing, of course, but evidence was already piling up five months ago that Wilson Bowden's impressive recovery from recession was coming to an end.

Full-year figures for 1994 were excellent, but Mr Wilson suggested in March that flat house prices were all that could be expected this year and margins would come under pressure from rising building costs and higher land prices.

Even five months ago, volumes were patchy with good progress in some parts of the country undone by sluggish sales elsewhere. Those good figures saw the shares bounce by an anaemic 4p to 326p despite falling 43 per cent over the previous year, so it is little surprise that yesterday's confirmation that the cycle has peaked should wipe 28p off the shares to 343p.

The malaise afflicting the housing market has been well-rehearsed - uncertainty over interest rates, the whittling away of mortgage interest relief and the proposed elimination of guaranteed mortgage payments for the unemployed have conspired to wipe out what fragile confidence was returning to the market last year.

That is tough luck for Wilson, which handled the recession better than any of its peers. Even in the thick of the slump, return on sales never slipped below 13.5 per cent and the balance sheet remained strong with gearing at the end of last year 7 per cent.

Maintaining a land bank of more than 10,000 plots, or five years' supply, meant Wilson did not have to buy inflated land when the market got over- excited about recovery in 1994. It was shrewd enough to change its mind on pounds 20m of acquisitions in last year's second half. But, as the shares found yesterday, it is impossible to buck the general direction of a market and the recent flurry of bad news for the building sector means its underperformance is likely to continue.

At this stage in the cycle, shares should be trading at a substantial discount to the rest of the market as expectations of falling profits are fact- ored into prices. If Wilson makes pounds 32m this year, the shares will trade on a prospective p/e of 15. Even after the fall, that is demanding and the shares still look expensive.

Microfocus only for the brave

Investors in Microfocus have over the past five years grown used to wild gyrations in the share price of one of the most volatile stocks on the market. The company, which yesterday announced losses of pounds 4.5m for the first six months of 1995, has marched its shareholders all the way to a peak of pounds 30 only to march them all the way down again.

One of the darling stocks of the early 1990s, the British-managed but mainly US-focused developer of software soared to its recent high in early 1993, on the back of an impressive client list and the company's expertise in the mainframe computer sector.

It all went terribly wrong soon after, as the strong growth in so-called network servers began to whittle away at Microfocus's core markets. The stock plunged as low as 695p by this April, recovering to just under 800p earlier this month.

Microfocus reckons it has turned the ship round and pointed it in the right direction. The market's reaction yesterday, pushing the shares down from 790p to 725p, suggests its enthusiasm is not universally shared.

Guessing how well computer software companies will do is notoriously difficult. The company argues it can make good money helping clients move from mainframes to network servers, linking chains of personal computers. At the same time, it is concentrating on developing new software products, and hints that the fruits of an aggressive research and development spend in recent years will soon show through.

The team that took charge in 1994 is certain the good times will come again. Many mainframe users, they claim, don't like the idea of abandoning all their systems at one go, and will still need Microfocus's expertise in "re-engineering" old processes. Investors will be wise to wait and see.

COMPANY RESULTS

Turnover pounds P/Tax pounds EPS Dividend

Barclays (I) - (-) 1.125bn (1.035bn) 42.8p (40.6p) 9.5p (8p)

BPP Holdings (I) 30.2m (24.7) 4.1m (3.5m) 9.4p (7.7p) 3.6p (3.1p)

BP (I) - (-) 1.1bn (813m) 19.9p (14.9p) 7p (5p)

Caverdale Group (I) 90.7m (48.3m) 2m (1.3m) 0.69p (0.55p) 0.12p (0.1p)

Cordiant 374.7m (379.4m) -29.6m (15.3m) -16.6p (2.9p) - (-)

Epwin Group (I) 33.4m (29m) 2.6m (2.5m) 8.2p (7.5p) 2.9p (2.7p)

Henderson Admin (Q1) - (-) 4.1m (5.3m) 12.6p (16.5p) - (-)

Holliday Chemical (I) 82.3m (62.9m) 10.95m (9.8) 7.6p (7.5p) 2p (2p)

Kay's Food Group (F) 9.1m (-) -1.1m (-) -2p (-) - (-)

Mid-States (I) 40.9m (36.8m) 2.45m (3.3m) 3.2p (4.8p) - (-)

Rea Bothers (I) -(-) 677,000 (621,000) 1.16p (1.13p) 0.5p (0.5p)

Spring Ram (I) 137.1m (128.2m) -17.3m (-1.1m) -3.5p (-0.3p) - (-)

(Q) - Quarterly (F) - Final (I) - Interim

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Scunthorpe goalkeeper Sam Slocombe (left) is congratulated by winning penalty taker Miguel Llera (right)
football
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Arts and Entertainment
Jennifer Saunders stars as Miss Windsor, Dennis's hysterical French teacher
filmJennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress
Life and Style
tech
Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
Voices
Jimmy Mubenga died after being restrained on an aircraft by G4S escorts
voicesJonathan Cox: Tragedy of Jimmy Mubenga highlights lack of dignity shown to migrants
Life and Style
Sebastian Siemiatkowski is the 33-year-old co-founder and CEO of Klarna, which provides a simple way for people to buy things online
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Carlton Senior Appointments: Sr Wealth Manager - San Francisco - Inv AdvisoryFirm

$125 - $175 per annum: Carlton Senior Appointments: Senior Wealth Manager – In...

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Adam Gemili interview: 'No abs Adam' plans to muscle in on Usain Bolt's turf

'No abs Adam' plans to muscle in on Usain Bolt's turf

After a year touched by tragedy, Adam Gemili wants to become the sixth Briton to run a sub-10sec 100m
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum