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12:46
www.lse.co.uk/ShareChat.asp?ShareTicker=BP.&share=BP
Size of potential buyback programmeToday 12:46
I've just been doing some digging for clues as to how big the buyback programme to be announced on April 27 may be.
From Q4 results slides, this statement caught my eye:
"Subject to the boards decision each quarter, we intend to maintain a fixed dividend of 5.25 cents per ordinary share per quarter our first call on funds. Together with our buyback commitment, this means that in aggregate across 2021-25 we expect to deliver per share distributions equivalent to over 10 cents per quarter at around $55 Brent and bp planning
assumptions, with upside to higher prices."
Source: www.bp.com/content/dam/bp/business-sites/...es-and-script.pdf (see page 20)
In summary at $55 Brent, shareholders get on average 5.25 cents fixed dividend plus 4.75 cents in buybacks.
From the condensed group cash flow statement for the Q4 results, we can get the total quarterly cost of dividends at 5.25 cents:
Dividends paid ($m) - BP shareholders (1,059)
- non-controlling interests (75)
So at 5.25 cents that's a total of $1,134m paid out each quarter. Annually, that is a dividend of $4,536m.
Based upon this, the buyback programme at $55 Brent in 2021 would roughly be:
4.75 cents / 5.25 cent * $4,536m = $4,104m.
BP's current market value is around $83bn so at $55 Brent, BP would be buying back roughly 5% of the outstanding shares in 2021.
However, recall the results presentation said: "..with upside to higher prices". The oil price is around $7-8 above the assumption of $55 albeit it's probably more complicated in practice because we need to account for refining margins (still a bit weak) and gas prices etc. That said, we have reached the net debt target early and Q1 business performance was described as being very strong. So, this speaks to upside.
I assume BP could choose to match the buyback programme to total dividends roughly giving $4.5bn of buybacks in 2021 (giving an effective yield of over 10% when you include cash dividends). However, it makes much more sense to front load the buyback programme when the share price is weak so BP has the scope to be even more aggressive in 2021 and 2022 and taper off the programme thereafter through to 2025.
Suffice to say, we need to wait until April 27 for the full details. However, I think the market is not yet grasping the opportunity here and the potential firepower of the new buyer (BP) in the market for its own shares through 2021 and beyond. I hope BP goes big in 2021 when the share price is weak.
Have a fantastic weekend all.
(All IMHO DYOR and, of course, we need to hear from BP on April 27!)
Best
Happy
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