BP is a ‘Prime Ceasefire Beneficiary’

JPMorgan raised BP (LON: BP) from Underweight to Neutral this week, increasing its price target for the stock from 440p to 510p. 

Analysts at the investment bank cited BP’s outsized Rosneft option value, limited exposure to EU/UK gas markets, and an undervalued share price as key reasons for the upgrade.

JPMorgan believes BP is uniquely positioned to benefit from a ceasefire in the Russia-Ukraine conflict. 

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The bank explains: “Risked at 50% of pre-Russia/Ukraine BV, this still equates to a leading 10% of BP’s market cap (as high as 20% unrisked). We believe this makes BP a prime ceasefire beneficiary for the second-order ‘silver bullet’ this implies for deleveraging.” 

JPMorgan estimates this deleveraging effect could be worth 700 basis points of net debt to capital employed.

BP’s reliance on EU/UK gas markets is also seen as relatively modest, with analysts noting that “greater volatility could even emerge as a relative support to gas trading.” 

This is said to suggest BP’s trading business could benefit from fluctuating energy prices, even if regional gas markets remain unstable.

In terms of valuation, JPMorgan argues that BP is trading at a wider discount compared to sum-of-the-parts net asset value (SOTP NAV) than its European oil major peers. 

The bank believes the valuation gap is significant, especially amid “activism newsflow” and speculation around shareholder pressure for strategic changes.

The bank also points to BP’s recent cash yield tightening. However, JPMorgan suggests that “firmer ‘strategic reset’ commentary alongside FY suggested the emergence of Elliot activism could stimulate a deeper cost/disposal reset.”