Made a second purchase of BP today, at 335p, which should be my last (barring a further fall from here of 30% or more).
As you can see from my portfolio page BP now makes up a little over 8% of my share holdings, and is my second largest holding (after Berkshire Hathaway).
Tuesday, 22 June 2010
Wednesday, 16 June 2010
BP update
I still have cash on the sidelines that I'm prepared to use on BP shares. They've fallen a little over 10% since I bought some last week, and there's been a lot of news since then - so do they still look like good value?
The market cap is now about $94bn, down from $174bn pre-spill. Over the same period Shell is down 10%, so the BP-specific drop is $62bn.
BP have now promised to put $20bn into a fund to pay compensation claims. If there is any money left over at the end then they'll get that back - but if the $20bn is inadequate they are still liable. I'm happy to accept $20bn as a likely total for the compensation claims that will be paid out. That's up from $15bn I estimated last week.
On the positive side, with this administered by a 3rd-party, BP hopefully won't be fighting too many cases through the courts. So at least their legal bill should be kept under control - last week I estimated $15bn, but lets reduce that to $5bn.
The Clean Water Act seems like it may come into play, and that provides a fine of up to $4300 per barrel of oil spilled. The latest estimate puts the top-end of the leak at 60,000 barrels per day. The oil has been leaking for 56 days now, and it seems like it won't be finally capped until mid-August - so lets say 120 days. That suggests a total leakage of 7.2 million barrels. BP is going to capture some of that, but I think it's unrealistic to assume it can manage more than about 2 million barrels. Let's say a total of 5m is going to get out there. That means that BP's maximum liability under the Clean Water Act is $21.5bn. Surely the fact that they are cleaning up the oil, and the fact that they are bending over backwards to pay compensation will weigh in their favour? I think $15bn would still be a very conservative estimate here.
Finally there are the cleanup costs. I estimated $10bn last week, and I see no reason to change that.
That makes a total of $50bn - exactly the same as last week. Having said that, my feeling last week was that this was "apocalyptic", whereas now it only seems "conservative". BP still look pretty cheap to me, but I think I'll hang on a little longer before committing more cash.
Update 17/06/10:
Another point in BP's favour - presumably the fines, cleanup costs and compensation claims are all paid pre-tax. Last year BP paid a tax rate of 33%, so costs of $50bn should only equate to a reduction in value of $33bn. That means the $62bn drop is well overdone, and in fact a fair price is about 440p.
Update #2 17/06/10:
Apparently fines are not tax-deductible, but the rest should be. Therefore my $50bn estimate is actually $38bn post-tax, and a fair price is about 425p.
The market cap is now about $94bn, down from $174bn pre-spill. Over the same period Shell is down 10%, so the BP-specific drop is $62bn.
BP have now promised to put $20bn into a fund to pay compensation claims. If there is any money left over at the end then they'll get that back - but if the $20bn is inadequate they are still liable. I'm happy to accept $20bn as a likely total for the compensation claims that will be paid out. That's up from $15bn I estimated last week.
On the positive side, with this administered by a 3rd-party, BP hopefully won't be fighting too many cases through the courts. So at least their legal bill should be kept under control - last week I estimated $15bn, but lets reduce that to $5bn.
The Clean Water Act seems like it may come into play, and that provides a fine of up to $4300 per barrel of oil spilled. The latest estimate puts the top-end of the leak at 60,000 barrels per day. The oil has been leaking for 56 days now, and it seems like it won't be finally capped until mid-August - so lets say 120 days. That suggests a total leakage of 7.2 million barrels. BP is going to capture some of that, but I think it's unrealistic to assume it can manage more than about 2 million barrels. Let's say a total of 5m is going to get out there. That means that BP's maximum liability under the Clean Water Act is $21.5bn. Surely the fact that they are cleaning up the oil, and the fact that they are bending over backwards to pay compensation will weigh in their favour? I think $15bn would still be a very conservative estimate here.
Finally there are the cleanup costs. I estimated $10bn last week, and I see no reason to change that.
That makes a total of $50bn - exactly the same as last week. Having said that, my feeling last week was that this was "apocalyptic", whereas now it only seems "conservative". BP still look pretty cheap to me, but I think I'll hang on a little longer before committing more cash.
Update 17/06/10:
Another point in BP's favour - presumably the fines, cleanup costs and compensation claims are all paid pre-tax. Last year BP paid a tax rate of 33%, so costs of $50bn should only equate to a reduction in value of $33bn. That means the $62bn drop is well overdone, and in fact a fair price is about 440p.
Update #2 17/06/10:
Apparently fines are not tax-deductible, but the rest should be. Therefore my $50bn estimate is actually $38bn post-tax, and a fair price is about 425p.
Thursday, 10 June 2010
BP - Blooming Preposterous?
I've just bought some BP shares at 377p. My reasoning is posted on shareworld but essentially I think the share price is already pricing in the worst-case - and therefore any surprise should be on the upside. Of course that's not to say the share price won't go lower in the short run.
I was in two minds whether to go in big at the current price, or average in over a couple of purchases. I've decided to commit about half of the total I'm willing to put in, and I'll keep an eye on the share price for the next few weeks looking for a good time to commit the rest.
BP is now 4.6% of my portfolio.
I was in two minds whether to go in big at the current price, or average in over a couple of purchases. I've decided to commit about half of the total I'm willing to put in, and I'll keep an eye on the share price for the next few weeks looking for a good time to commit the rest.
BP is now 4.6% of my portfolio.
Wednesday, 9 June 2010
More tax fun
More mucking about to avoid tax today. Shuffling IEEM and IAPD around, while also slightly reducing my holdings. They both now form ~6.4% of my holding. My last remaining tax conundrum is Berkshire Hathaway - and I can't use ISAs to get around that one. I haven't yet decided what to do.
In other news, I'm considering buying shares in BP. More on that later!
In other news, I'm considering buying shares in BP. More on that later!
Tuesday, 1 June 2010
Shareworld part 2
After my brief stint in December/January, I've now returned to writing for shareworld again. So far I've posted one new article there, on investing pitfalls.
As before, I'll always post every trade here on my blog as soon as I make it, and generally put more chunky stuff on shareworld.
As before, I'll always post every trade here on my blog as soon as I make it, and generally put more chunky stuff on shareworld.
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