One to Watch: BP worth backing

BP OPERATES in more than 80 countries. It is involved in hydrocarbon exploration and production, refining and marketing. In addition, its mid-stream activities include pipeline, transportation and processing operations. Its main brands are Amoco, Arco, BP and Castrol and it also owns a portfolio of local operations across the globe.

BP's shares reacted unhappily to the announcement that it is proposing to pay $7 billion (4.7bn) to Devon Energy. This is the largest deal BP has done for seven years and, assuming it is consummated, the company will acquire licences in the oil-rich waters off the coast of Brazil and the Gulf of Mexico and established production in Azerbaijan.

In February, Devon estimated it had net resources of seven to 11 billion barrels of oil in the Mexico and Brazil areas, producing about 40,000 barrels a day, which implies that the price BP is paying is quite high. However, this is to ignore the potential, which some put at anything up to 1.6 billion barrels of oil equivalent which, if confirmed, would represent a per barrel price of $4.40; this compares with BP's Russian interest of $5.

A number of highly-regarded analysts are sceptical of BP in general. They cite what they see as a relatively high break-even profitability, an oil price of $70, and worry about the implications of any further economic downturn on global demand; after all, it was not that long ago that oil was below $40 a barrel.

In my opinion, Tony Hayward, BP's relatively new chief executive, should see his initiative supported. Like timber concerns, oil firms have to look well into the future. However, BP has an international and robust business model.

The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Wm Morrison

295p +0.4p

Broker says ADD

HAVING just delivered a "strong" set of full year results, Charles Stanley broker Sam Hart says Morrisons is well placed to deliver high single digit/low double digit earnings and dividend growth for the next three years. Hart argues that the supermarket chain has the strongest balance sheet in its sector.

BSkyB

584p -14p

Broker says REDUCE

EVOLUTION Securities has downgraded its recommendation on digital TV heavyweight BSkyB to "reduce" after rumours of a bid by NewsCorp, which already owns 40 per cent, recently took shares to a 27-month high at 598p. Evolution analyst Steve Malcolm says: "This leaves the shares 7 per cent above our fair value."