BP Plc, the worst oil investment this year on Wall Street, is finding its backers in the City of London.
Investors piled more money behind “buy” trades than “sell” ones in London since the April 20 rig explosion, according to so-called money flow data compiled by Bloomberg, even as the stock slumped to a 13-year low. By contrast, BP’s American depositary receipts have recorded a net $185 million outflow in New York, the data show.
As the worst oil spill in U.S. history spurs attacks from President Barack Obama and soils Florida’s beaches and the Louisiana marshlands, London investors are backing BP’s embattled chief executive officer, Tony Hayward. After a five-year string of accidents and deadly disasters at BP facilities, U.S. Representative Bart Stupak suggested last week its safety record could justify pulling the company’s operating permits in the U.S.
“There’s a feeling in the U.K. that BP has been singled out unfairly and that there’s long-term value in the stock,” said Iain Armstrong, an analyst at Brewin Dolphin Ltd., which oversees more than $31 billion in London and increased its BP holdings in May. “In the U.S., it’s a very emotive issue, and politicians are making it much more personal and vindictive. If you’re a U.S. fund manager and BP doesn’t manage to stop the leak, you’ve got a lot to answer for.”
Hayward drew criticism again this weekend after attending a yacht race off the south coast of England, watching sailboats on the Solent at a time when fishing in the Gulf of Mexico is curtailed because of BP’s spill.
Hayward’s attendance was “part of a long line of PR gaffes and mistakes,” White House Chief of Staff Rahm Emanuel said on ABC’s “This Week” television program. “We can all conclude that Tony Hayward is not going to have a second career in PR consulting.”
BP agreed last week to cancel nine months of dividend payments, saving about $7.5 billion, sell $10 billion of assets and reduce investment to raise cash to meet Obama’s demand for a $20 billion fund for victims of the spill.
“When people turn on the news they see this gusher pouring out,” said Ronald Sorenson, CEO of W.H. Reaves & Co. in Jersey City, New Jersey, which manages $1.6 billion in assets, including BP shares. “That puts a lot of pressure on advisers. Individual investors take this very personally.” Sorenson said he’s sold shares for individual investors since the spill began.
The London-listed stock is down 47 percent since the explosion on the Deepwater Horizon rig that killed 11 workers and started the leak on the seabed. The shares fell to a 13-year low of 342 pence on June 15, wiping about 60 billion pounds ($89 billion) off the company’s value. The ADR is down 45 percent this year, more than any other company in the 11-member CBOE Oil Index.
BP fell 2.2 percent in London today to 349.5 pence.
Money flow attempts to measure the capital moving in and out of a security by adding the value of higher, or uptick, trades and subtracting the value of downticks. As prices fall, money flows are usually negative, turning positive as prices rise. A divergence between money flow and price may signal a change in the trend.
The method was pioneered by Laszlo Birinyi, founder of the Westport, Connecticut-based research and money-management firm Birinyi Associates Inc.
“People in the U.K. are buying the stock, taking advantage of the discount” since the stock plunged, said Cleve Rueckert, an equity analyst at Birinyi’s firm. “But when a stock starts to slide like this, it’s hard to say when it will turn around.”
City Vs Wall Street
Birinyi’s October 2007 forecast that a recovery in banks would be wiped out presaged an 82 percent plunge in the Standard & Poor’s 500 Financials Index through March 6 of the next year.
The split over BP between U.K. and U.S. investors extends to analysts. The U.K. stock has 26 “buy” recommendations, while 12 analysts recommend holding the stock and two say to sell. In contrast, almost as many U.S. analysts advise against purchasing the stock as buying it. The ADRs have seven “buy” recommendations, five “holds” and one “sell.”
“I’m sure anger is fuelling the selling,” said John Olson, managing partner at Houston Energy Partners, a hedge fund unit of Sanders Morris Harris Group Inc. “We’ve had a media firestorm, and the flames have been fanned by the Obama administration.”
Moody’s Investors Service cut the company’s debt rating by three levels last week on concern litigation claims will be an “overhang” on BP’s creditworthiness for years. Fitch Ratings pushed BP down six notches to two grades above “junk.”
U.S. lawmakers accused Hayward, 53, of stonewalling and dodging questions about the causes of the explosion when he testified before a Congressional committee last week. The New York Daily News previously called the CEO “the most hated --and clueless -- man in America.”
“I don’t think the image that comes across in the States is at all fair to him,” said Timothy Guinness, CEO of Guinness Atkinson Asset Management in London, which owns BP shares. “He is very hard working, he is very conscientious, he is trying to do the right thing. The fall was overdone, the upside from here is quite significant.”
Guinness said he’s buying BP shares for more aggressive investors, anticipating a gain of as much as 50 percent during the next year.
After taking over from John Browne in May 2007, Hayward pledged to apply a “laser-like focus” to improving safety, declaring the goal one of his three top priorities.
To turn BP around, Hayward will have to regain the confidence of U.S. regulators, politicians and investors. BP became the biggest producer of oil and gas in the U.S. after spending $100 billion buying Chicago’s Amoco Corp. and Atlantic Richfield Co. of Los Angeles between 1998 and 2000. About 26 percent of its production is in America, stretching from Alaska’s Prudhoe Bay in the Arctic to the deep waters of the Gulf of Mexico.
“When things look the worst, that’s usually when the value opportunities present themselves,” said Lothar Mentel, chief investment officer for Octopus Investments Ltd. in London. “But you do have to have a long-term perspective.”