Come on Shell! Here’s why you could consider buying BP shares…
“Dear Mr Sawan,
“8 July 2025
“RE: BP (LSE:BP.) SHARES
“I’m writing in response to Shell’s press release of 26 June, which stated that your company’s not ‘actively considering’ purchasing BP, its FTSE 100 rival. As your statement acknowledges, this precludes making an offer for a period of six months. However, this may change with BP’s agreement or if there’s a ‘material change in circumstances’, but for now at least, it’s clear to me that a takeover isn’t on the cards.
“However, I think there are a number of reasons why you could consider revisiting your decision.
“Reduced valuation
“First, the recent fall in the oil price — and its impact on BP’s valuation – means, in my opinion, there’s an opportunity to acquire a bit of a bargain.
“As recently as February 2023, the group had a market cap of over $120bn. Today, despite the business being fundamentally the same as it was 28 months ago, it’s valued at approximately $82bn. To remind you, at 31 March, BP had a book value of $78bn. This implies a price-to-book ratio of 1.05, compared to Shell’s 1.16.
“If you were interested in buying, I’m sure you would have to pay a premium to its current stock market valuation. Even so, the purchase price is likely to be lower than you would have needed to pay when energy prices were much higher.
“A sleeping giant
“If you did acquire the company, I’m optimistic that you could implement some operational efficiencies. BP employs more people than Shell yet its revenue and earnings are much smaller. This could explain why your share price has done much better over the past 12 months. With a different approach and mindset, I think there’s a big opportunity to improve BP’s earnings.
“According to Reuters, your rivals’ production, manufacturing and distribution expenses soared from $33bn in 2019 to $43bn in 2024. Over the same period, operating costs as a proportion of EBITDA (earnings before interest, tax, depreciation and amortisation) went from 70% to 113%. By contrast, Shell saw a $1bn drop in its operating expenses. They also fell as a proportion of earnings.
“If BP could become as efficient as Shell, its free cash flow (FCF) would improve enormously. I understand one of the company’s biggest shareholders, Elliott Investment Management, is targeting FCF of $20bn by 2027 (it was around $8bn in 2024). If realised, anyone buying BP could quickly recoup the purchase price.
“Potential risks
“Of course, having joined Shell as an engineer in 1997 you’re fully aware of the particular challenges that the sector faces. Oil and gas prices are notoriously volatile, which makes earnings unreliable.
“And the Deepwater Horizon tragedy of April 2010 is a reminder of how devastating the consequences can be when things go wrong.
“Although there’s an unstoppable move away from hydrocarbons, demand’s still rising. And even when the world reaches peak consumption, most economists are predicting a gradual decline thereafter.
“I’m aware that you previously told the Financial Times that you’d prefer to buy your company’s own stock rather than that of your FTSE 100 rival. However, given the group’s current depressed valuation — and untapped potential that could be realised by implementing some operational efficiencies — you could consider buying BP’s shares instead.
“Yours sincerely,
“James Beard”
The post Come on Shell! Here’s why you could consider buying BP shares… appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
More reading
- Will these FTSE 100 shares surge or sink in July?
- See the latest BP share price and dividend forecasts
- Down 21%, here are 3 things that could boost the BP share price
- Shell may not be interested, but I’m still buying cheap BP shares
- Even if Shell doesn’t want to, should I buy BP shares?
James Beard has positions in Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
