Morgan Stanley stays at 'overweight' on BP

Analysts at Morgan Stanley reiterated their 'overweight' recommendation for shares of BP on Tuesday, pointing to its sustained organic free cash flow generation, likely fall in gearing going forwards, scheduled divestments most of which still lay ahead and "significant" remaining leeway for share buybacks in the second half of 2019.

At $6.7bn, the oil major's cash flow from operations came in below the $7.7bn which they had penciled-in, but organic FCF still printed at $3.1bn, for dividend cover of approximately 150%, with the company having reported a level of dividend cover of at least that in five out of the last six quarters.

BP's gearing meanwhile had increased from 30.4% in the first quarter to 31.0% for the three months to June, but that partly due to payments linked to the purchase of BHP assets (which had now concluded) and others related to the Deepwater Horizon disaster in the Gulf of Mexico, with the latter set to reduce "significantly" in 2020.

Hence, their estimates called for a steady reduction in gearing from the third quarter of 2019 onwards.

And of the $10.0bn of disposals planned for 2019-20, the company had thus far only completed $1.5bn.

Furthermore, having bought back roughly 17.0m of its shares over the latest reporting period, that "still leaves a significant number of shares to be bought back in 2H to meet its buyback commitment."

Morgan Stanley kept its 620.0p target price on BP.