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Stock of the week: BP

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Helal Miah, investment research analyst at The Share Centre, explains why oil major BP is this week's stock of the week.

This week’s stock of the week is oil giant BP as it released its second-quarter report at the end of July announcing an increased dividend for the first time since 2014 further accentuating its place on the road to recovery.

Underlying replacement cost profits compared to the same period last year surged fourfold to $2.8bn and production of oil was 1.4% higher at 3.6 million barrels of oil equivalent per day as major new projects have come online and plant reliability has been improved.

Its key upstream business experienced the best quarterly performance since before the crash in oil prices in 2014. These divisions performed much better than consensus expectations. However, it seems that the downstream refining industry is still facing a tricky period and profits here fell short of expectations.

The oil industry has been bouncing back for some time now as illustrated by major new project start-ups in Azerbaijan, Russia and Egypt and their acquisition of BHP Billiton’s shale assets in America for $10.5bn; another reflection of this confidence and one that will give BP a more diverse revenues stream.

This is all good news for investors as well as the reduction of the net debt and the increased dividend along with a share buyback scheme.

We believe the much-improved operational efficiency and cost structure will set them up well in the current oil price environment. We maintain our long-standing ‘buy’ recommendation for investors seeking a mixture of growth and income and willing to accept a medium level of risk.

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