bp (BP)
Energía / Petróleo y gas
An integrated oil major deep in cleanup mode, with a return on capital employed of 13.9% in 2025 against its own target of more than 16% for 2027: new executive leadership since April 2026, a US$20bn divestment program, and a 2025 fiscal year with US$6.04bn of net impairments and losses on sale — mainly the impairment of Lightsource bp and Archaea Energy — that left reported attributable profit at US$55 million. On mid-cycle earnings (~US$10.5bn) it trades at 11×, and the five-year base case delivers ~$49 (+3% annual from price plus +5% from dividends, or +8% total return): Fairly valued.
- Price
- $43.16
- Intrinsic value (5y, base)
- $49
- Total annual return (5y)
- 7.8%
- Status (nominal)
- Fairly valued
- Margin of safety
- +13%
The essentials
- Reported 2025 profit (US$55 million attributable on revenue of US$192.55bn) does not measure the business: it is a cycle trough with US$6.04bn of net impairments and losses on sale, mainly from the impairment of Lightsource bp and Archaea Energy. The valuation runs on mid-cycle profit, US$10.5bn, anchored to the underlying replacement cost profit the company itself publishes (US$13.84bn, US$8.92bn and US$7.49bn in 2023, 2024 and 2025).
- The first half of 2026 shows a strong recovery — US$8.9bn of underlying profit against US$3.7bn in the same half of 2025 — which the company attributes to above-normal refining and trading margins: it is upside, not the base case. Annualizing it would mean valuing off the top of the range.
- At $43 the dividend yield is 4.8% and the five-year base case path leaves +8% of total return. The moat is eroding and return on capital employed, 13.9% in 2025, still sits below the company's own target of more than 16% for 2027.
Intrinsic value — two valuation methods
Total return at 5 years: 7.8%/year = 2.7% appreciation + 5.1% dividend. The target price ($49) is ex-dividend; the $12 in dividends collected over 5 years are added separately.
By both methods, the value today (DCF $145 · Multiples $50) exceeds the market price ($43).
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $43 trades ~13.4% below its value discounted to today (~$50); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($49) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$32.
Thesis
The business
bp is in the middle of a deep cleanup, with a return on capital employed of 13.9% in 2025 that still sits below its own target of more than 16% for 2027 and US$6.04bn of net impairments and losses on sale recognized in the same fiscal year: new executive leadership since April 2026, a US$20bn divestment program with more than US$11bn already announced or completed, and a portfolio shrinking toward what performs. Operating quality improved in 2025 — record operated plant reliability and refining availability, 90% reserves replacement — but the moat remains narrow and is eroding.
The valuation
An integrated major is valued on P/E over normalized mid-cycle profit, never on the year's reported profit. The 2025 reported figure was US$55 million and says nothing: it is a trough with US$6.04bn of impairments. Mid-cycle is set at US$10.5bn attributable, between the average underlying profit of the last three fiscal years (US$10.08bn) and the strength of the first half of 2026, which is not annualized. At $43 that is 11×. The five-year base case carries profit to a bit over US$11bn with a flat share count — the board suspended buybacks at the fourth-quarter 2025 results and directs the surplus to the balance sheet — and applies an 11 times exit multiple, within the band for an integrated oil major: ~$49 per certificate.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The base case's total return is +8% annually, split between +3% of price and +5% of dividend: the dividend does more than half the work. The adverse scenario — Brent lower, refining margins normalized, and cost cuts that fail to materialize — gives +8% annually; the favorable one, +8%. The asymmetry is not wide in either direction, and much of the return depends on the cleanup not destroying more value than it releases.
What to watch
Three things. Commodity prices and the refining margin: the company itself discloses that every dollar per barrel of change in its marker margin moves US$450 million of profit before interest and tax. Execution of the divestments: US$8 to 9bn guided for 2026, about US$6bn of it from Castrol, and the net debt target of US$14 to 18bn hinges on it. And underlying profit against the US$10.5bn mid-cycle level: if the second half of 2026 holds the pace of the first, the base case falls short; if the refining margin reverts, it runs too rich.
Educational / informational. Does not constitute investment advice.