BP backed by RBC with 700p target as earnings estimates jump

BP PLC ( LSE:BP. ) received a bullish assessment from RBC Capital Markets after the broker raised its estimates and highlighted expected debt reduction. BP shares were quoted at 541.50p in London trading. RBC maintained its 'Outperform' rating and 700p target, citing higher refining margins and expected balance-sheet improvement. A key expected driver of deleveraging is the planned closing of the Castrol deal, which RBC said would generate $6 billion in cash. At current forward-curve pricing, RBC expects BP's all-in liability stack to fall to $45 billion in the third quarter and $34 billion by year-end. The broker said share buybacks could become achievable by mid-2027, using net debt-to-mid-cycle cash flow from operations as a reference point. BP CFO Kate Thomson said she expects the company to deliver $5.8 billion in structural cost savings by the end of 2027, expressing dissatisfaction with bottom-line drop-through. Potential free cash flow generation left BP's valuation multiples undemanding, according to the research note, which expects BP to place greater emphasis on its core oil and gas business and less on transition businesses. The 700p target was based on a 50/50 weighting between a sum-of-the-parts valuation and a normalised EV/DACF, using a 5.5x multiple. That multiple was at a wider discount to BP’s historical average than it applies to some peers, reflecting uncertainty over the company’s longer-term strategy. The broker expects BP to make approximately $1.1 billion in payments per annum over the next few years. Analysts at the investment bank also cited commodity-price, political/security, execution and environmental/permitting risks.