Could a raft of earnings upgrades by analysts be on the cards for BP (BP.). The oil major reported a strong set of first-quarter results that saw adjusted earnings of $4.2bn (£2.7bn) beat consensus forecasts by more than 25 per cent. This encouraging start to the year prompted investors to bid up the company's share prices - but is the outperformance merely a one-off, or a hint of more to come?
Encouragingly, chief executive Bob Dudley said nearly all segments of BP’s businesses performed strongly in the quarter. Yet it was rising production in high-margin areas such as the North Sea and Angola that contributed most to the earnings beat, helped out by an improved trading performance and slightly better gas prices.
Granted, adjusted earnings were still down 10 per cent from a year ago as a result of the company's ongoing asset divestment programme, which included the $27.5bn sale of its Russian TNK-BP interest in March. But optimists will point to the near 8 per cent rise in earnings compared with the fourth quarter of 2012 as a sign that BP is well on its way to achieving material operating cash flow growth by 2014.
The company wants to increase cash flow to around $30bn-$31bn next year, up 50 per cent on 2011. But it still has some way to go; operating cash flow in the first quarter was just $4bn. Certainly, new projects coming on-stream in Australia and Angola this year will help, as well as six major projects scheduled for completion next year.
So what does all this mean for earnings upgrades? Initial indications are that the first-quarter accounts will likely result in material upgrades - brokers such as Investec have recently placed their target price under review.
But BP also noted in the results that it foresees slightly higher costs, lower production and a weaker downstream in the second quarter - so any earnings upgrades may be more muted than headline figures suggest.
