BP worth a punt?
Discussion
DonkeyApple said:
Why buy this week? That doesn't make sense at all.
This is 100% an 'event' play. We are waiting for the 'event' which will trigger a short to medium term bounce. No logic at all in buying until that takes place.
Once that event has occured and the market has duly reacted then short term plays would close out and the long term plays will reduce exposure.
It's very text book this one and is a great play but not this week unless the 'event' happens. The event being the stopping of the leak.
I agree with the above in principal. To some extent we saw the above happening when the top kill was supposedly successful last week, we had a bit of short covering and the price moved up.This is 100% an 'event' play. We are waiting for the 'event' which will trigger a short to medium term bounce. No logic at all in buying until that takes place.
Once that event has occured and the market has duly reacted then short term plays would close out and the long term plays will reduce exposure.
It's very text book this one and is a great play but not this week unless the 'event' happens. The event being the stopping of the leak.
I personally reckon the bottom will be 400, it potentially could reach 375 or lower but my opinion is sub 400 investors will think Bp's looking cheap and start to move in.
Why go in now? From experience its always difficult to predict or catch the bottom so I've started moving in, in stages take a bit at the current price then a bit more should it hit 400.
There is though still quite a bit of uncertainty regarding the figures for the total cost of clean up, fines, the future implications on the revenue, and even potential criminal proceedings. Also I get the feeling the USA want to make an example of BP and will try everything they can to get the maximum compensation out of BP.
But since the whole leak started I think the shares have wiped something like 44 billion off the company which sounds like a lot more then potentially the whole mess could cost.
Edited by twinturboz on Wednesday 2nd June 10:21
Beardy10 said:
DonkeyApple said:
Beardy10 said:
I think BP's estimate of $1bil cost is probably very low but these costs will be taken over many years...the Exxon Valdez litigation looks to have been ongoing til a couple of years ago. There will also be ongoing damage to BP's business (and every other oil company) in terms of the cost of extracting oil from similar wells in the future. Even if the cost is $5bil BP looks well capable of dealing with that.
However, none of these issues are crippling and we're talking about a company that has $7bil cash on the balance sheet and generates FCF of $10bil a year. Crucially (in my mind) a lot of these costs will be born over many, many years rather than in one lump sum this year.
So do I think it's worth a punt ? Yes
Is now the right time to buy ? Who knows!
The market seems to think there will be a dividend cut which I think would go down like a bucket of cold sick with shareholders...it's currently yielding nearly 9% for those of you interested in that.
I am going to buy some this week (probably 30% of what I would like to buy) and see what happens. It will be going into my pension.
Why buy this week? That doesn't make sense at all.However, none of these issues are crippling and we're talking about a company that has $7bil cash on the balance sheet and generates FCF of $10bil a year. Crucially (in my mind) a lot of these costs will be born over many, many years rather than in one lump sum this year.
So do I think it's worth a punt ? Yes
Is now the right time to buy ? Who knows!
The market seems to think there will be a dividend cut which I think would go down like a bucket of cold sick with shareholders...it's currently yielding nearly 9% for those of you interested in that.
I am going to buy some this week (probably 30% of what I would like to buy) and see what happens. It will be going into my pension.
This is 100% an 'event' play. We are waiting for the 'event' which will trigger a short to medium term bounce. No logic at all in buying until that takes place.
Once that event has occured and the market has duly reacted then short term plays would close out and the long term plays will reduce exposure.
It's very text book this one and is a great play but not this week unless the 'event' happens. The event being the stopping of the leak.
Think of it this way.....BP's market cap is down something like about a third or £40bil and the wildest estimates this thing may cost them $10 bil dollars ( ten times BP's estimate and lets not forget they have insurance) in total over several years. I just don't think that's right.
Here's a question for you.
Why do you think think is "text book" ?
People never focus on the risk, that is why they pick bad entry levels.
An alarm bell rings for me when someone says 'I don't want to miss out'. That emotion is a key driver to eroneous descisions. There will be plenty of people who dived into things like Rockhopper because they didn't want to miss out and are sitting on big losses.
There is a medium term angle also currently at play but a weaker factor than the current leak event and that is the costs of the clear-up, the legal wranglings and the reputational damage to BP within the US.
This is very likely to mean that once the flow is stemmed there will be a strong bounce in the price (this is Trade 1). Then, over the medium term there will be price fluctuations as news flow over future costs etc controls the share price.
On the medium horizon, BP will be insured as you say, but what we don't know is the small print of the policies. Ultimately, you have to assume that policies of this size will be underwritten by AIG, which has just been bailed out by the US taxpayer. We don't know how much of the damage will be covered. We don't know what criminal charges could be brought. We don't know the cost of the clear-up.
However, what we can assume is that we have a situation as follows:
On one side you have a UK listed company with a non US title.
On the other you have:
Haliburton, TransOcean, the Democrats, AIG and all the residents of the Gulf of Mexico. All US and all will be working their hardest to pin all blame on BP.
BP has grown through acquisitions, not natural growth like Shell. Many of those aquisitions were US firms. Amoco is the one that springs to mind. As such an extremely significant level of BP's annual earnings are derived from the US and these are at risk.
Finally, the long term view: BP is arguably a good long term play and well worth the risk of investment. But, what are the factors, the variables, that could alter this view. Well, none of the mid term events are critical to the business, they will pay for this over a long period. Whatever the outcome of the mid term events they will define a price discount on the shares at arguably a much higher level than at present so they are not all that relevant for this scenario. The defining factor is when they stop the leak. If they cannot stop it until the new wells are drilled (2/3 months time) then that is a scenario which will re-define the long term aspects of the company. That is why now is not the right time at all for a long term play.
The shorts are still well in position on this stock and it is only when they stem the flow that these will unwind and the covering of the shorts and the relief buying will propel the price up.
The play at present is a 2 part play. The first part is a short term trade, probably with about a third of your overall final exposure to BP. This is the 'punt' that BP will stem the flow in the next couple of weeks. If it doesn't then this trade must be closed. I would run with a 8-10% stop loss to protect downside. (there is added risk that news flow is 24 hours and BP LSE listing is only open for 8 hours a day. There are ADRs, but the simplest action is to execute this first trade as a spread or CFD using a guaranteed stop loss).
The second play is once the well is stemmed. This is the key long term trade and shouldn't be done on leverage but with physical stock. The time to enter the trade is not when the news breaks (you are already gaining from the short term trade at a rate of knots at this point) but a short while later. The reason is that the price will go over-bought and naturally pull back a little, and then news flow and fears over costs will pull it back again, plus, there is the risk that the plug could fail. There will be an excellent entry point a short while after. It is a case of buying on weakness not in the middle of an irrational short term uptrend.
Once everything has then settled down, you can convert your short term leveraged holding over to a physical and sit tight knowing that you are infinitely smarter than all the mug punters who have lost a fortune because they pannicked, got greedy, got nervous, got stupid.
twinturboz said:
DonkeyApple said:
Why buy this week? That doesn't make sense at all.
This is 100% an 'event' play. We are waiting for the 'event' which will trigger a short to medium term bounce. No logic at all in buying until that takes place.
Once that event has occured and the market has duly reacted then short term plays would close out and the long term plays will reduce exposure.
It's very text book this one and is a great play but not this week unless the 'event' happens. The event being the stopping of the leak.
I agree with the above in principal. To some extent we saw the above happening when the top kill was supposedly successful last week, we had a bit of short covering and the price moved up.This is 100% an 'event' play. We are waiting for the 'event' which will trigger a short to medium term bounce. No logic at all in buying until that takes place.
Once that event has occured and the market has duly reacted then short term plays would close out and the long term plays will reduce exposure.
It's very text book this one and is a great play but not this week unless the 'event' happens. The event being the stopping of the leak.
I personally reckon the bottom will be 400, it potentially could reach 375 or lower but my opinion is sub 400 investors will think Bp's looking cheap and start to move in.
Why go in now? From experience its always difficult to predict or catch the bottom so I've started moving in, in stages take a bit at the current price then a bit more should it hit 400.
There is though still quite a bit of uncertainty regarding the figures for the total cost of clean up, fines, the future implications on the revenue, and even potential criminal proceedings. Also I get the feeling the USA want to make an example of BP and will try everything they can to get the maximum compensation out of BP.
But since the whole leak started I think the shares have wiped something like 44 billion off the company which sounds like a lot more then potentially the whole mess could cost.
Edited by twinturboz on Wednesday 2nd June 10:21
How do you derive your floor figure projections of 400 or 375?
How much of that 44bln is from 'expectations' which have very clearly gone now out of future earnings?
BP's price prior to the leak included quite a hefty premium for future growth and revenue. This really has gone. Any firm operating deep wells will be being discounted for that fact at present and BP were expecting good growth from their US operations, which were sizeable. I don't think that is going to happen. So quite a bit of that 44bln is naturally accounted for by the loss of future earnings.
As you say, the cost of the clear-up is not quantifiable at this stage. If they seal the leak now and succesfully claim against AIG, manage to get TransOcean and Haliburton to cough up and are able to keep the US Govt and also people on side then the cost is going to be manageable. But if they can't then the costs are likely to be enourmous and have massive impact on future growth, revenue and activity in the US.
Would anyone like to guess just how many retail traders who had gone long of BP last week had their entire accounts wiped out this week and are still being chased for the deficit? No one ever talks about this. People only shout when they win.
Still an enviro crazy castrophe in these environmentalist times. How do we know that BP won't become the scapegoat for big oil's impact on the planet thereby ensuring a slow and quiet death while BP fights through a mountain of litigation and other oil companies look to lessening their impact on the environment coming out of it the good guys.
Yeast Lord said:
Still an enviro crazy castrophe in these environmentalist times. How do we know that BP won't become the scapegoat for big oil's impact on the planet thereby ensuring a slow and quiet death while BP fights through a mountain of litigation and other oil companies look to lessening their impact on the environment coming out of it the good guys.
The major tobacco companies have gone through the litigation cycle in the US and come out the other side......end of the day BP produce something there is huge demand for and obviously own significant reserves of something there is a finite supply of. The US administration is going to throw the book at them and then pick it up and throw it again just to make sure, I still think they will come out the other side. People will unfortunately continue to turn a blind eye to the environmental impact and care much more about the cost of the petrol they put on their car....the environmental impact in the Niger Delta or the Canadian Oil Sands projects is immense but people don't seem to care about that ?
DonkeyApple said:
However, what we can assume is that we have a situation as follows:
On one side you have a UK listed company with a non US title.
On the other you have:
Haliburton, TransOcean, the Democrats, AIG and all the residents of the Gulf of Mexico. All US and all will be working their hardest to pin all blame on BP.
I just don't agree with that and you are also missing the fact that Anadarko (who are a US company) have 25% of the lease alongside BP. On one side you have a UK listed company with a non US title.
On the other you have:
Haliburton, TransOcean, the Democrats, AIG and all the residents of the Gulf of Mexico. All US and all will be working their hardest to pin all blame on BP.
To think that because AIG is US Govt owned (or that becuase they are a US and BP a UK entity) that they will be able to somehow renage on insurance policies is fanciful. Lets think about what happens to AIG's business if they try and walk away from the contract, pretty much any non US client will walk away (together with many US clients)....that will destroy AIG's business and any hope that the US taxpayer has of getting money back on the bailout. Pretty sure Obama is not that stupid.
Beardy10 said:
DonkeyApple said:
However, what we can assume is that we have a situation as follows:
On one side you have a UK listed company with a non US title.
On the other you have:
Haliburton, TransOcean, the Democrats, AIG and all the residents of the Gulf of Mexico. All US and all will be working their hardest to pin all blame on BP.
I just don't agree with that and you are also missing the fact that Anadarko (who are a US company) have 25% of the lease alongside BP. On one side you have a UK listed company with a non US title.
On the other you have:
Haliburton, TransOcean, the Democrats, AIG and all the residents of the Gulf of Mexico. All US and all will be working their hardest to pin all blame on BP.
To think that because AIG is US Govt owned (or that becuase they are a US and BP a UK entity) that they will be able to somehow renage on insurance policies is fanciful. Lets think about what happens to AIG's business if they try and walk away from the contract, pretty much any non US client will walk away (together with many US clients)....that will destroy AIG's business and any hope that the US taxpayer has of getting money back on the bailout. Pretty sure Obama is not that stupid.
The point is that any payout will be defined by legal action and that is where the heavy bias will run against BP.
Don't get me wrong, this has the potential to be a great long term buy, but seeing as only this week thousands of retail traders just got taken out, it is clear that for the long term element of this play the timing is not yet right.
I agree with you that they will throw the book at BP (as I said before) but I think BP has more than enough ammunition to weather the storm. Any litigation will be take years to go through...the Exxon Valdez litigation was still being argued over 20 years after the spill. That is a huge positive in BP's favour, if they had to pay all the clean up costs, fines and litigation costs this year yes it could be an issue (but even then I think they could deal with it) but give them three years (never mind twenty) to reserve for it and it's not an issue for them.
Drilling for oil is undoubtedly going to be a much more expensive operation in the US....and BP's business in the US will no doubt not be as profitable as it has been but again this is a global and very well diversified business that can deal with that.
Am I buying BP to try and make 50p a share quick profit in the next few days or weeks? No and frankly I think it's a dangerous trade.
Do I think the price could be lower at some point in the near future than I paid today ? Absolutely
Will I buy more if it goes down another 10 or 20% ? Absolutely
Drilling for oil is undoubtedly going to be a much more expensive operation in the US....and BP's business in the US will no doubt not be as profitable as it has been but again this is a global and very well diversified business that can deal with that.
Am I buying BP to try and make 50p a share quick profit in the next few days or weeks? No and frankly I think it's a dangerous trade.
Do I think the price could be lower at some point in the near future than I paid today ? Absolutely
Will I buy more if it goes down another 10 or 20% ? Absolutely
ShadownINja said:
Them's proper professionals, innit.
Depends. You would actually expect something like this if they are proper brokers.The service and advice that they supply to an older woman approaching retirement, will and should and mostly must be different to the advice they give to a younger man in the earning prime.
The former should be looking for income while protecting capital and the other would typically be looking for capital growth.
If the broker gave identical advice to two very different people at different points in the lives and different objectives then that would be wrong most of the time.
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