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BP p.l.c. Message Board

  • cdanajackson cdanajackson Mar 11, 2010 12:57 PM Flag

    BP's relative valuation

    Despite having a wonderful dividend yield and nice price-to-earnings, price-to-sales, and price-to-book ratios, on a cash basis the stock appears to be wholly overvalued based on its current share price.

    Remember, the price-to-earnings ratio is based on accrual accounting, versus following the actual cash the company generates.

    Here are some of the particulars:

    Enterprise value-to-Free cash flow ratio=28.09

    Price-to-Free cash flow ratio=149.95

    Price-to-Ownering earnings ratio=52.85

    Again, these ratios are based on following the cash and not the company's reported earnings. So, BP looks to be a no buy.

    Something else that's rather interesting is in the last year, BP reported earnings of $5.25 per share. Whereas, when you follow the cash, BP generated $0.38 per share in free cash flow and $1.08 per share in owner earnings. So, this leads me to believe the reported earnings grossly overstate the company's true profitability.

    Please feel free to comment.

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    • dont knock on fcf too much without understanding the ROE and capex spending. they might be pursuing a strategy of investment internally generated in order to boost enterprise value in the long. just a thought i am not sure you captured in your quick analysis.

    • Ad hominem attacks from you tells me that I've hit a nerve with YOU.

      Certainly, this is the pot calling the kettle beige.

      As far as my calculations, nothing I've discussed is a big secret. If you'd bother to use your favorite search engine, you'd find this out for yourself.

      Finally, the relative valuation calculation techniques I've used are used by those more "professional" than me, so that's good enough for me.

      Obviously, you are above learning from others. I'm not.

    • Yep, I see you came back, good.

      Let’s see now….. .. All I see is more meaningless B.S. posted.
      Where’s your home work? Did your dog eat it again? I guess you just pulled these numbers out of your but*. A secret formula that “you calculated yourself “and we should just “trust you”? Yeah right!! You sound just like a used car salesman. I’m very disappointed in you. Your credibility is lower than a snakes belly as far as I’m concerned, and just a waste of my time.

      WHAT A LOSER!!! LOL!!!


    • As others have pointed out, free cash flow is not a well defined metric. Is it cash flow before dividends and capex? after dividends? after capex? A better metric, and one used much more widely by the financial community to value companies, is EBITDA (earnings before interest, taxes, depreciation and amortization) which is a measure of cash earnings of a company, before taxes, dividends and capital expenditures. On this measure BP is trading at an enterprise value of about 6X EBITDA, XOM is trading at about 8X EBITDA, according to Yahoo Finance.

    • Most of these models you see from MBA type programs. They normally look at free cash yield which is operating cash flow/equity. These models were developed primarily for companies paying quite little in dividends. The problems is that BP pays a sizable dividend. Thus, the free cashflow is much lower then it could be. The fallacy of this type of analysis is that their yield would be so much better if they simply stopped paying a dividend. However, that would make the stock much less attractive (at least to me).

      Another point is that are you basing your analysis on 2008 or 2009? Obviously, 2009 was a year of low crude price. 2008 had about $10 billion in more cashflow. Giving that crude is at $83/bbl, 2010 looks much better then 2009. So, I would guess that 2009 would have about $5 billion more in cashflow.

      Finally, you need to understank, I think, a little about the fundamentals of this business. The assets of BP are not depreciating software or widgets, rather it is oil in the ground. Oil is not going away. This means that this company's earnings will not either. A bank's assets, for example, is the quality of its loans. And, as we have learned, judging that quality can be difficult. Much more then oil.

    • Please tell us the definition of "free cash flow"

      If you calculated these ratios yourself, which I doubt, please show us the calculations.

      Please also give us the same ratios fo XOM, CVX and Shell.

      BTW, your conclusion fails on the definition of free cash flow.

    • Nope, haven’t had a chance to check your numbers yet, but assuming they are correct, there are other factors to consider. This is a Major oil and gas company, not your plain Jane stock like J&J. Perhaps you should do some research on the oil industry first, maybe it will make sense. I just don’t have time now to explain it to you.
      Good Luck

    • boy you sound like your a pro with all that crap.what the fuck are talking about... its oil and pays a good dividend still needs oil. go long cant go wrong . stop with all that horse shit .. buy in and set a stop loss. anyone can spin anything with all that fancy talk ...

      • 1 Reply to bill.bird12
      • Well, if me having learned a lot from the likes of Warren Buffet, Peter Lynch, and Harry Domash, then I'm a "pro".

        However, if you mean I must be a degreed, Wall Street equities analyst, then you're wrong. I am not.

        I simply don't believe that markets are efficient. You appear to hope quite the contrary view.

        Yes, oil and gas will be needed for some time to come, but I only want to buy the stocks of such companies when they become undervalued.

    • If you're so freaking smart, how come you're not rich?

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