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News that oil giant BP (BP.) is making the move back into retail, taking full control of 208 US fuel stations, is both a bet on strong growth ahead in electric vehicle charging and convenience stores, and also something of a reversal of its business model over the past decade or so.
While over recent years BP and the other oil majors had been bent on selling off their branded fuel stations and instead ploughing their time and money into oil production and exploration, this US deal suggests BP is setting in motion its plans to double earnings from its “convenience and mobility business” to $10 billion globally by 2030.
According to BP, analysis from Euromonitor suggests the “convenience opportunity” is set to almost double over the next decade in 45 of the leading economies of the world, growing at more than 5% a year. And that is clearly something BP wants a share of.
It has already bolstered its forecourt presence in the UK by doing a deal with M&S to have Simply Food stores on site at more than 300 of its fuel stations. And it estimates that around half these stores’ customers visit without buying fuel.
The big money though is on the potential growth of the electric vehicle market. With electric vehicle charging stations set to become the favoured alternative to petrol and diesel, that will mean more drivers on site for longer while their vehicles charge, effectively giving BP a ‘captive’ audience to sell to.
A retail-focused U-turn?
It turns out that when the pandemic hit and BP and the other oil majors took a hit as lockdowns forced a cut back in fuel consumption, convenience stores reaped the rewards of people venturing out to shop small and shop locally. Retail, it emerges, is good for business at BP.
So much so that BP now aims to increase its number of stations by nearly 50% to 29,000 by 2030. It still has some way to go before it grabs a dominant share of the retail pie though, with rival Shell also planning to expand its empire by more than 20% to 55,000 outlets globally within the next few years. But this retail space is clearly where potential world dominance in convenience stores lies - Shell is the second-largest retailer in the world by the number of sites it operates, just behind 7-Eleven.
There will no doubt be more on this shift in strategy when BP gives its second quarter update this coming Tuesday (3 August). What is likely to be of even more immediate interest to shareholders though is Tuesday’s news on what sort of shape its next dividend payout will be in.
The oil giant has traditionally been a big payer of dividends but, after reporting its first full-year net loss in a decade in 2020, it almost halved its third-quarter dividend to 5.25 cents a share, and that pay out was maintained in the last quarter.
But with better-than-expected earnings for the first quarter, following a period of stronger commodity prices and a brighter demand outlook, hopes are the normal service will resume.
While BP’s profits came in at $115 million in the fourth quarter and just $791 million in first quarter of 2020, first-quarter 2021 underlying replacement cost profits, used as a proxy for net profits, came in ahead of analysts’ expectations at $2.6 billion. Analysts had been expecting first-quarter profits closer to just $1.4 billion. All of which bodes well for investors on the hunt for income from their BP shareholdings.
News on the share buybacks that were also mooted in April should also be forthcoming on Tuesday. BP had said it intends to resume share buybacks at a cost of around $500 million in the second quarter.
More on BP
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