I got up this morning to the news that the FTSE 100 company BP (LSE: BP) had just reported a loss. I had to rub my eyes at that. This is a great time for oil companies. After an awful last year, oil has seen a spurt in demand in 2021 and a corresponding spike in prices. So it would be fair to expect an oil company’s fortunes to look good.
It is no wonder then that the BP share price is down 3.5% on the news of its loss. So what just happened here?
Why has BP reported a loss?
A largely technical accounting reason led to the latest loss, it appears. Without getting too far into the nitty-gritties, it seems BP’s earnings suffered in the third quarter because of how sharp fluctuations in the price of liquid natural gas (LNG) need to be reported according to International Financial Reporting Standards (IFRS). BP expects that if LNG prices come off from their highs and cargoes are delivered, things can look better.
Nonetheless, at $2.5bn, the loss looks significant. It is more than five times the loss seen in the same quarter last year. And that was during the height of Covid-19, when demand for oil and gas was low.
Why hasn’t the BP share price fallen more?
After what appears to be one hell of a disastrous result, I would have expected the BP share price to be a big loser in today’s trading. But it is not. In fact, it is not even among the top five biggest FTSE 100 losers in today’s trading so far. So what explains that?
I reckon some of it might be because investors are still trying to figure out what just happened here. As an investor in BP myself, I know that I am! While the company has reported massive headline losses in the third quarter, for the nine months of the year so far, it is still sitting on solid profits. Also, its underlying earnings look good to me at $3.3bn, which is a huge 39 times the profits seen last year this time.
Positives for shareholders
This is a significant positive, but there are others too. The company is planning a share buyback, which could both increase its share price as well as the dividend amount paid to investors. In fact, it mentions that it considers “disciplined execution of its financial frame with a resilient dividend” its first priority, which bodes well for generating a passive income from the stock.
At present, BP’s dividend yield stands at 4.4%. While this is not the highest among FTSE 100 stocks, I do like it for two reasons. One, it is above the FTSE 100 average of 3.4% and two, I think it can rise more in the foreseeable future because its prospects look good and also because of the buybacks.
Also, I think that its share price can rise much more. In the past year, it has already risen by 68% and it is still lower much lower than the pre-pandemic levels. I expect the BP share price to rise much more. It is still a buy for me, especially now that it has fallen.
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Manika Premsingh owns shares of BP. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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