BP boss Bernard Looney started eight months ago with a trinity of soundbites: reimagining energy, reinventing BP, and performing while transforming.
Covid-19 and the oil-price crash could not sway the oil man from the first two. He has set out one of the most ambitious shifts to renewable energy of any oil major. Ten thousand jobs are going as part of a wide-ranging reorganisation. But the third limb of Mr Looney’s strategy has proved more precarious. BP recorded a $6.7bn underlying loss in the second quarter after taking huge writedowns on the value of exploration assets. Transforming perhaps, performing not so much.
Mr Looney hailed Tuesday’s third-quarter earnings as proof the group was living up to the slogan. Underlying replacement-cost profit for the quarter was $86m rather than the $120m loss analysts had expected as both BP’s upstream and downstream divisions outperformed. Adjusted operating profits of $1.24bn were double the consensus estimate. Cash flow was better than expected too.
After eight months of turmoil, a dividend cut and Big Picture strategising, the results were an exercise in reassurance. Buybacks could be back in the frame as early as the final quarter of next year, once net debt falls below $35bn from more than $40bn at present. Oil and gas will be the “engine” of BP’s transformation. There will be no fire sale of assets to meet targets.
In reality, it is far too early to tell whether BP is performing in the way that matters, just as it is too early to tell whether it is transforming.
It is cutting costs as it said it would, selling non-core assets as it said it would, and with last month’s $1.1bn acquisition of a stake in two offshore wind projects, investing in renewables as it said it would.
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But the doubt investors feel about its strategic shift and the ability of its low carbon division to deliver returns is evident in BP’s share price, down almost 60 per cent so far this year. For most of 2020 it had outperformed rival Shell. That gap has closed, not widened, since BP gave investors more detail on its reinvention plans last month. Orsted, the Danish wind farm developer and an earlier adopter of renewables, has overtaken BP by market capitalisation in recent weeks.
BP’s new strategy is sensible. Whether it can pull it off is debatable. But whatever Mr Looney says, investors are no closer to knowing whether BP can really perform or transform.
St James’s Place: charting a new course
St James’s Place, the wealth manager of choice for fans of cruises and gold cufflinks who don’t mind their financial advisers being incentivised by cruises and gold cufflinks, has extended its grip on more than just the nation’s shirtsleeves, writes Matthew Vincent. It has just reported assets under management at an all-time high of £119bn, because it attracted another £3bn in the last quarter and kept hold of 96 per cent of those it already had. Evidently, it’s not just Harry Enfield’s bejewelled perma-tanned Brummie who is seeking to be “considerably richer than yow”.
But one SJP shareholder now wants its managers to roll up their sleeves — and run a tighter ship than the 5,000-berth floating holiday camps once beloved of its intermediaries (SJP stopped offering them cruises and other sales incentives earlier this year).
A day before Tuesday’s update, activist PrimeStone Capital suggested that while employees and advisers had been enjoying the high life, investors had been left behind — as “bloated” costs meant limited operational leverage, preventing rapid sales growth becoming faster profits. It noted that a quarter of SJP employees — not the franchised advisers — earned more than £89,000 a year, putting them in the top 4 per cent of UK earners. It also wondered how 80 of them could work in marketing when most new business came via referrals, and 120 could have job titles beginning “head of . . . ”.
However, is the new shirt it proposes for SJP managers unnecessarily hairy? Staff costs only appear proportionally higher than peers as SJP’s lower-paid roles are outsourced, and off its books. Marketing is used to attract advisers to the business, not customers — and with fund inflows directly correlated to adviser numbers, it needs to recruit to maintain its market dominance. Analysts at Shore Capital note that SJP’s annualised net inflow as a percentage of assets under management is 6.8 per cent, which compares well with Quilter’s 2 per cent, Nucleus’s 4 per cent and AJ Bell’s 8 per cent. Operating leverage is also inevitably limited when you book more deferred revenue from pension products and face higher, uncontrollable regulatory costs.
Shareholders may find one other suggestion from the former management consultants who now run PrimeStone considerably rich: after criticising SJP for bloated costs and job title inflation, the investor suggests the solution is . . . hiring a “well-regarded consultancy firm”.
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