Tags: EU | Britain | BP | Shares

BP Shares Stage Comeback After Oil Spill Sell-Off

Wednesday, 05 May 2010 11:17 AM

Shares in BP PLC rose slightly in London trading on Wednesday as analysts suggested the 20 billion pound ($30 billion) plummet in the company's value since the Gulf of Mexico oil spill has been overdone.

Analysts said its unlikely that BP will have to cut its dividend as a result of the accident and expect the London-based company's final clean up and damages bill to be lower than the recent loss of share value.

Stockbroker Panmure Gordon switched its recommendation from sell to buy, recommending that investors switch out of Royal Dutch Shell into BP for the yield premium.

"BP has had a torrid time over the last few days, as the market assesses the potential impact of the spill in the Gulf of Mexico on the company," it said in a note. "Although we believe that this is not a good event, we believe that the market reaction to this event has been overdone."

Panmure lifted its target price from 496 pence to 600 pence.

BP shares were trading well below that on Wednesday afternoon at 559.90 pence, up 0.25 percent. The stock peaked at 573.9 pence earlier in the day.

The shares have only closed higher once to break a 15 percent fall since the April 20 explosion on the Deepwater Horizon rig, picking up some ground after BP reported bumper quarterly profits on April 27.

The company has estimated the cost of the effort to contain and secure the well at $6 million each day, but has said it is too early to assess other potential costs involved with the incident, which killed 11 workers.

Moody's Investors Service cited that "considerable uncertainty" over BP's financial liabilities and cleanup costs when it lowered the outlook for the company's credit rating on Wednesday. Moody's revised the outlook for Aa1 senior unsecured ratings from "stable" to "negative."

But Killik & Co head of equities Jonathan Jackson is among other analysts maintaining a buy recommendation on BP, noting the company will split the cost of the accident with rig owner Transocean and other equipment suppliers. BP could also recoup some funds by suing Transocean.

Analysts said any rally may be a slow-build as people may be inclined to put off buying because there is no immediate benefit — shares are unlikely to jump significantly until the spill is contained, an eventuality that may take days or weeks to arrive.

BP said Wednesday that it has stopped the flow of oil from one of the three existing leak points on the damaged oil well and riser.

"While this is not expected to affect the overall rate of flow from the well, it is expected to reduce the complexity of the situation being dealt with on the seabed," it said in an update on the situation.

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