BP’s (LSE: BP) share price has dropped 23% from its 18 October 12-month traded excessive of £5.62.

Because it stands, it seems to be low-cost on a number of key measurements of inventory worth.  For instance, on the price-to-earnings measure, it trades at simply 12.2 towards a peer common of 14.25.

This group includes Shell at 12.3, Chevron at 14.1, ExxonMobil at 14.9, and Saudi Aramco at 15.7.

On the price-to-book ratio, BP trades at 1.4 in comparison with a peer common of two.4. And on the price-to-sales ratio, it trades on the backside of the group at 0.4 towards a peer common of 1.8.

I ran a reduced money movement analysis utilizing different analysts’ numbers and my very own to establish how a lot of a cut price it might be in money phrases. BP’s shares look 60% undervalued at their current price of £4.30 on this foundation.

Subsequently, a good worth for the inventory could be £10.75, though it may go down in addition to up.

How does the core enterprise look?

This excessive undervaluation seems to be even much less justified to me having regarded on the agency’s Q2 outcomes launched on 30 July.

Underlying substitute value revenue rose 6.5% to $2.756bn from $2.589bn in Q2 2023. Working money movement jumped 29% to $8.1bn from $6.293bn.

The outcomes announcement reiterated the priorities in place to ship “a simpler, more focused and higher-value company”.

In broad phrases, these contain embarking on high-potential oil and gasoline initiatives whereas pausing some renewable vitality ones.

BP and Shell consider their share costs have suffered from the sooner prioritisation of inexperienced vitality initiatives over fossil gas ones. In contrast, their higher-valued US opponents have continued their enlargement of oil and gasoline assets.

Consequently, I feel the important thing threat for BP is authorities stress to re-prioritise and expedite its vitality transition initiatives.

New initiatives shifting ahead

On the identical day because the Q2 outcomes, it gave the go-ahead for the Kaskida undertaking within the oil-rich Gulf of Mexico. This unlocks probably 10bn barrels of found oil reserves there.

On 1 August, the agency signed a preliminary settlement with Iraq’s Oil Ministry to develop 4 oil and gasoline fields within the Kirkuk area. The world is estimated to include about 9 billion barrels of recoverable oil.

Analysts now forecast that BP’s earnings will develop 9.1% a yr to the tip of 2026. Earnings per share are anticipated to extend 17.1% a yr to that time.

Elevated shareholder rewards

In 2023, it paid a complete dividend of 28 cents (22p) a share, giving a yield of 5.1% now. This contrasts very favourably to the FTSE 100 common of three.7%.

Furthermore, it elevated its second interim dividend this yr by 10% — to 8c from 7.27c. Analysts’ projections are for the yield to rise to five.8% in 2025 and to six.1% in 2026.

Similtaneously growing the dividend, BP introduced a $3.5bn share buyback for H2. The identical quantity was purchased again in H1. Such programmes are usually supportive of share costs.

Will I purchase extra?

I will probably be shopping for extra of the shares very quickly for 3 key causes.

First, the intense share undervaluation. Second, the robust anticipated progress prospects. And third, the elevated dividend and projected rising yield.