To buy or not to buy? UK income stars clash on BP

BP’s robust results lifted shares in the oil major last week but provoked mixed reactions as managers debate whether now is the time to buy back in

The UK’s top income fund managers are divided over the outlook for BP and whether to increase their stakes in the oil major after its better than expected results last week.

BP – a key stock for income fund managers – reported profits of $5.1bn (£3.2bn) in the third quarter of the year, up from $1.8bn a year ago.

Replacement cost profit for the first nine months of the year was $15.9bn compared to a loss of $9.5bn for the same period the previous year.

BP’s better than expected results lifted shares in the oil major last week, and prompted Cazenove’s Matt Hudson, running the group’s top performing £52m UK Equity Income fund, to increase his stake in the group.

Hudson, who has around 6.2% of his fund in BP after building up his overweight position over the last six months, said it is the oil major to back in the UK given its valuation and the move to refocus the business.

“On a long-term view, BP is the most attractive investment to have among the integrated oils – it is more interesting than Shell,” he said.

“The results were pretty robust and although there are still some other issues to resolve, it is working through these things. We are looking to see where we can add value, and BP has more to offer.”

Shares in the group have climbed (by more than 50%) from a low of 304p seen after the Gulf of Mexico disaster last year, and are today trading around 470p.

Veteran Bill Mott, running the £452m PSigma Income fund, is also bullish. Although he is not adding to his 4.8% stake, he said he was comfortable with the position in the “cheap” company.

“We are overweight compared to peers and we have our fingers crossed the company can pull itself forward,” he said. “The company is too cheap, but there is also still a court case to come in February.”

Peer James Henderson, who has a 3% stake in BP in his £320m UK Equity Income fund, is not planning to up his fund’s stake in the stock, but said for an investor looking to buy into BP now, there were a number of positives.

“The rating on BP is very low, while yields look solid to show dividend growth from here,” he said. However, other investors were wary of the stock. Fidelity’s Michael Clark, running the £412m MoneyBuilder Dividend fund – the second best fund in the whole sector over the last year – is avoiding BP for now.

He said: “It is too early to invest. They are obviously recovering from the problems they have had and I’m sure that will continue, but I’m not sure how they will reward shareholders. I think they will focus on share buybacks rather than dividends but I want to see how that develops first.”