The Investment column: `30% BP' ends up red-faced

Sir David Simon, chairman of British Petroleum, is never short of a catchy phrase to describe the oil giant's results and yesterday was no exception. In ebullient mood he described 1996 as the "30 per cent year", since both profits and dividends were up by around that amount. Last year replacement cost profit, which excludes exceptionals, surged to pounds 2.62bn, with the fourth quarter dividend raised 15.25p to 19.5p.

Yet the reaction of the markets left BP's top brass looking more than a little red-faced. The shares ended 27p lower at 694p as dealers turned sour on the oil sector, thinking that the recent slide in oil prices back to more realistic levels had yet to hit sentiment. The talk from analysts was about "unrealistic optimism" being punctured, hardly what BP wanted to hear.

On the face of it, the figures seems to bear out this analysis. It was true that BP's fourth-quarter profits of pounds 689m were slightly below expectations, but this was because John Browne, chief executive, had included in the figures discretionary spending in the exploration and production businesses, including $40m on a new computer system. The 1p rise in the fourth-quarter dividend to 5.25p was also mildly disappointing with some analysts looking for 5.5p.

Yet, beneath it all, BP's core business seems as solid as ever, either outperforming other oil groups in terms of its return on capital, or at the very top of the industry's best performance. BP makes returns of 17 per cent on investment, whereas Shell, which reports tomorrow, is having trouble getting above 12 per cent.

Even the fall in oil prices is deceptive. All oil companies had a bumper year in 1996 as the price of oil unexpectedly rose to $25 a barrel. Though the price has dropped since the autumn to $21, BP's internal target is just $14, whereas long-term forecasts - always an unreliable guide in the oil business - see the price hovering at around $20 a barrel. Sir David was yesterday anxious to dampen expectations of another 30 per cent year in 1997. Yet all the indications are that BP's predictions will turn out to be far too pessimistic. Analysts are forecasting net income of pounds 2.94bn and earnings per share rising from 46.7p to 51.95p. On that basis, yesterday's share price fall could spell a good buying opportunity.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea