Sweta Killa: After surging in the first half of the year, energy stocks have been badly hit in recent weeks by falling oil prices and its impact on profits. This is especially true as slowing global demand, especially in China, as well as supply glut have taken toll on the global oil prices, pushing the stock price down.
Given this backdrop and a tough environment in Russia, stronger-than expected results from Europe’s third largest oil company, BP plc (BP), before the opening bell yesterday spread optimism in the global energy sector. Additionally, the company boosted shareholder returns through increased dividends, which kindled a rally in BP shares.
BP Earnings in Focus
BP reported earnings per ADS of 99 cents, which strongly beat the Zacks Consensus Estimate of 90 cents on higher production and improved refining margins. However, it fell 15.3% from the year-ago earnings of $1.17 primarily on declining oil prices. Revenues also dropped 2.8% year over year to $93.90 billion.
The company stated that though it owns a nearly 20% stake in Russian oil giant Rosneft, its Russian operations remain unaffected from the tough sanctions imposed by the Western powers.
Oil production at BP, including Rosneft’s production, fell a marginal 0.7% from the year-ago quarter due to Abu Dhabi onshore concession expiry which more than offset higher production at upstream and Rosneft. Output is expected to fall marginally in the fourth quarter due to weather disruptions and the closing of the Alaska asset sale.
Driven by solid earnings beat, the British oil giant hiked its annual dividend by 5.3% to 60 cents per ADS. This reflects increased confidence in the company’s ability to meet its full year operating cash flow targets and the strength in the wake of weaker oil price environment.
The market has welcomed BP’s earnings beat and rising dividend payments. The shares of BP jumped over 2% at the close on Tuesday on elevated volumes. The smooth trading has also been felt in the ETF world with funds having the largest allocation to the oil giant. Below, we have highlighted such ETFs that could be considered by investors seeking to ride out the strength in BP (read: Power Your Portfolio with These 3 Energy ETFs).
SPDR S&P International Energy Sector ETF
This fund provides exposure to the energy companies of developed markets excluding the U.S. by tracking the S&P Developed Ex-U.S. BMI Energy Sector Index. It is less popular and illiquid with AUM of $15.1 million and average daily volume of less than 10,000 shares. The ETF charges 50 bps in fees per year from investors.
In total, the fund holds about 130 securities in its basket. Of these firms, BP occupies the third position with 9.96% of total assets. About 92% of the portfolio is allocated to oil gas and consumable fuels, and the rest to equipment & services. In terms of country exposure, United Kingdom takes the largest share at 34.5% while Canada and France also get double-digit exposure at 30.3% and 11.1%, respectively. The product added 1.55% in yesterday’s session.