Quick Take: We would suggest looking at BPLN USD 2033s on weakness post-2Q earnings, as we see spreads as wide vs. UK/EU peers and the A-rated US Energy Index; and ratings catalysts are also likely to drive longer-term compression. Momentum may carry spreads 5-10 bps wider in the near term.
- BP missed 2Q earnings estimates due to a weaker energy commodity backdrop, refinery maintenance and low trading profits. No change to FY23 guidance.
- Credit metrics remain strong for BP’s (A2/A) ratings, even after a weak 2Q performance and the announcement of increased shareholder payouts. Ratings upgrades still likely by 1H24, in our view.
- Spreads on BPLN USD 2033s trade wide to peer Shell (RDSALN; Aa2/A+) and TotalEnergies (TTEFP; A1/A+) USD issues by 15-20bp; in-line with BBG US A-Rated Energy Index.
- BP’s capital allocation framework allows for financial flexibility. Mgmt. has multiple levers to pull (i.e. capex, repurchases, divestitures) without sacrificing its long-term transition strategy.