LONDON – Shares in BP rose in London Thursday, as the company's agreement to set up a US$20 billion fund and cancel dividend payments to cover damage from the Gulf of Mexico oil spill was seen as reducing uncertainty over its liabilities. Some analysts had a "buy" rating on the stock despite the risks to the company from the spill. The shares were up 6.9 per cent at 360.15 pence (US$5.34) midday trading on the London Stock Exchange, retreating from an earlier peak of nearly 370 pence. They had also rallied in US trading last Wednesday, gaining 45 cents to close at US$31.85, after BP executives' meeting with United States President Barack Obama produced an agreement that analysts said provided much-needed clarity for investors. Pension funds, which hold major stakes in BP, were unhappy at the suspension of dividends.
"BP's package agreed with President Obama should cool the political heat and provide some degree of comfort to equity and bond markets, shareholders and businesses/residents in (the Gulf of Mexico) affected by the Deepwater Horizon accident," analysts at Evolution Securities said in a research note Thursday. "Even if the final cost totals US$40 billion and BP is liable for 100 per cent the shares look oversold," said the analysts, who recommend the shares as "buy." Analysts at Collins Stewart in London also upgraded their recommendation to "buy."
"We recognise that some investors may prefer not to hold BP at all for the next several months because of environmental concerns or social conscience issues, and we fully acknowledge that the risks on the stock remain high," they added in a research note.
BP PLC's shares have lost nearly half of their value–paring the company's market value to US$90 billion–since the April 20 explosion on the Deepwater Horizon rig which killed 11 workers and sent oil gushing from a broken pipe. Hannah Williams of Datamonitor financial analysts, said the dividend announcement was bad news for pension funds and individual investors. "One-seventh of dividend income from FTSE-100 companies comes from BP, with a large majority of BP shareholders being UK pension funds. Therefore, the dividend payments, which are worth a total of 1.8 billion pounds every three months will further impact these funds which have already been affected by a halving of BP share value," Williams said.