BP Q2 preview: Where next for the BP share price?

When will BP release Q2 earnings?

BP will release second quarter earnings on the morning of Tuesday August 2.

BP Q2 earnings consensus

Analysts forecast that BP will report an underlying replacement cost profit – its headline measure – of $6.6 billion in the second quarter, more than double the $2.8 billion reported the year before.

The reported profit at the bottom-line is forecast to follow and jump to $6.8 billion from $3.1 billion last year.

BP Q2 earnings preview

BP shares have risen over 12% since the start of the year, although this has significantly underperformed its main rival in London, Shell, which has jumped over 26%.

Although energy giants have seen earnings explode and cashflow improve this year, BP was an outlier in the first quarter of 2022 after sinking to a $20 billion loss after booking significant charges related to its exit from Russia and its near-20% stake in Rosneft following the eruption of war in Ukraine. Still, earnings hit their highest level in over a decade once those charges were stripped out and this is expected to improve further in the second quarter.

With the worst of those charges now behind it, investors will be hoping BP can get back on track in the second quarter and enjoy the same rewards as the wider industry that is benefiting from significantly higher oil and gas prices, as well as a spike in refining margins.

We have already had second quarter results out from Shell, which showed it was firing on all cylinders as it delivered a second consecutive quarter of record profit that beat expectations and generated more than enough cash not only to pay down debt but also step-up share buybacks. CEO Ben van Beurden admitted Shell is finding it a challenge to spend the influx of cash this year, but has signalled that buying back shares will remain a priority so long as it believes its share price is undervalued, signalling returns could accelerate further in the fourth quarter of 2022.

BP’s operating cashflow is forecast to rise to $9.7 billion in the second quarter, up 79% from the year before and almost $1.5 billion more than what was delivered in the first. That should feed through to higher levels of surplus cashflow, of which 60% is being used to fund buybacks whilst the other 40% is helping strengthen the balance sheet.

BP has said it is aiming to grow its annual dividend by around 4% and has said it will spend at least $4 billion on buybacks each year, having repurchased $1.6 billion in the first quarter and launched a $2.5 billion programme for the second. Analysts expect BP will at least maintain that run-rate at $2.5 billion in the third. However, with quarterly dividends costing around $1.1 billion, there is scope that buybacks could be accelerated further depending on how much surplus cash it is left with.

Meanwhile, debt has fallen for eight consecutive quarters and ended March at $27.5 billion. This should remain the case in the latest quarter with analysts forecasting this fell to $25.6 billion by the end of June.

Where next for the BP share price?

The earnings beat from Shell initially sent BP shares to their highest level in over three weeks at 396.8p this morning before coming back under pressure and giving back those gains.

That suggests the 100-day moving average, currently at 395p, is proving a tough level to crack considering the stock has tested it on numerous occasions over the last five weeks and failed to stay above here for long. This is the key level that needs to be recaptured before the 50-day moving average at 403p, roughly in-line with the closing highs seen in July, can come back into play. From there, it can go on to target 410p and then above 426p. The 28 brokers covering BP see over 28% potential upside from current levels with an average target price of 503p.

The stock has been rising over the past two weeks, although the average-volume-at-time slumped by almost one-third compared to the 100-day average during that time. That suggests there is a lack of momentum behind the recent rise, although the results could provide the catalyst needed to reignite interest in the stock.

If the stock comes under renewed pressure, we could see shares fall back toward the 200-day moving average at 378p, although 365p should be treated as a firmer level of support that must hold to avoid bringing 351p onto the radar.

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