Citi makes case for BP over Shell
Analysts at Citi reiterated their preference for shares of BP over rival Shell, telling clients that while they were both sporting similar dividend yields, of 6.0% and 5.6%, respectively, the foundations for shareholder income at the former were "very different".
Hence, they opened a 'Catalyst Watch' for BP, telling clients that: "a combination of higher returns to shareholders and potential market rotation (rising rates/cyclicals) can see the market reward differentiated growth."
The dial-down in BP obligations for Macondo to a ratable $1.2bn per year, versus $5.5bn in 2017, and progress on deleveraging would help it achieve its target for $10.0bn in proceeds from disposals.
Their analysis showed that BP now had over $2.0bn per year of financial capacity to boost dividends - perhaps by as much as 20.0% - or to initiate a long-promised buyback, possibly as soon as its third quarter earnings.
Furthermore, while Shell was over-distributing and or under-investing, BP was under-distributing when compared with its rivals, even as free cash flows improved and the company deleveraged.
Citi was at 'buy' on BP and 'sell' on Shell.