Is the worst over for BP?
JULY 29TH, 2010 By DOMINIC
With £11 billion losses, a pledge to set aside £21 billion to cover the costs of the oil spill and a dramatic falls in shares, is this the time to take a punt on BP shares?
Even when the UK was in the grip of an economic mire and the FTSE 100 had tumbled to one of its all time lows my positive comments on how a volatile market can bring great gains would have irked those who had taken a painful hit on their investments. But I still stood by it and indeed it was a time when canny investors made great gains.
I have to say, I’ve been reluctant to place such a positive spin on the ensuing BP crisis; yesterday’s announcement that chief executive Tony Hayward is to step down combined with the monopoly money figures of losses and recouping of costs and the fact the oil disaster is being used as a political football, Stateside, means for the first time I’m questioning if every cloud does have a silver lining.
Peter Botham who is chief investment officer of private bank Brown Shipley offered me his thoughts on the BP issue: If investors should learn any lessons from the BP debacle it is that just because a company is big doesn’t mean that it’s safe. Nobody could have foreseen the oil well tragedy (let’s not forget 11 people lost their lives) that would spark the dramatic demise of BP – made so alarming by the fact it’s the biggest company in the market and perceived to be very safe.
Sadly, the same message reverberated after individuals lost 90% and in some cases 100% of their investments when RBS and Lloyds imploded through high level recklessness. Just because a company is big doesn’t mean it is safe.
Peter is keen to push the message of diversification. It’s simply far too high a risk to place your nest egg in one basket. A spread of investments across the spectrum of risk will put your finances in far better position in the long run.
So, is it the time right to invest in BP shares? Peter’s succinct initial response doesn’t indicate a firm no, but a cautionary approach. After all, this is a company which has cancelled dividend payments for the last six months, potentially for another year and as November elections loom in the USA, the political mud slinging will continue which will unsettle the market.
Though in conclusion Peter is more upbeat. We now know the extent of the problem and he believes the recovery will be gradual with the share price appreciating over a year or two, although it is unlikely to reach the previous 650 high for a very long time. He is optimistic dividends will also be restored in a year’s time. BP is a diverse company and it will still generate plenty of cash to recoup costs over the next two years further bolstered by the selling of £10 billion in non core assets. Fast returns are not on the cards but for those taking a long term view the share price will recover.
Please note these are the views of the author and Peter Botham and the material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
Posted in: General Information