FTSE 100’s Tryst with BP Plc

  • Oct 30, 2019 GMT
  • Team Kalkine
FTSE 100’s Tryst with BP Plc

BP Plc and Royal Dutch Shell Plc are the only two stocks from the oil and gas industry to be included in the FTSE 100 index. Yet by market capitalization both the companies have always been amongst the top five of all constituent companies on the index. Both these companies have worldwide operations, bringing in significant revenue to the British exchequer and they also play a major role in ensuring energy security for the British economy. During this uncertain and choppy economic environment as well these companies have provided strength to the Footsie (FTSE 100 index) with the effect that riding on the performance of these oil majors, the index has been able to beat the economic slowdown and Brexit-related negative effects that have battered every other sphere of the British Economy.

The FTSE 100 index is the second highest valued stock index after the FTSE All Share index in terms of market capitalization and is maintained by the FTSE Russel company in the United Kingdom. Launched on 3 January in the year 1984, the FTSE 100 stock index comprises of the top 100 stocks listed on the London Stock Exchange arranged in descending order in terms of their market capitalization, which at any point of time represents at least 80 percent of the total market capitalization of the London Stock Exchange

This headline stock index, also known as the large-cap stock index, is representative of the largest companies in the United Kingdom, in terms of revenues and market capitalization, is seen by many as the barometer of the British economy. It is examined by economists, debt market makers, academicians, researchers and stock market professionals alike to carefully consider and understand the implications of any unwarranted movements in the general economic indicators of the British economy and its effects on the stock index and vice versa. The role of FTSE 100 has now, however, come to questioned in recent times as the barometer of the British economy, in academic and industry circles, as the index now accommodates an increasing number of multinational and foreign companies whose fortunes are to a very limited extent affected by the macro-economic fundamentals of the British economy. FTSE 250 index is now being pushed forward to don this coveted title as the index has a greater proportion of Britain domiciled companies with a healthy mix from all sectors.

However, this characteristic of the FTSE 100 of being less of a barometer of the British economy on account of the presence of multinational companies has helped it hedge against the risks posed by the influence of the fragile state of the British economy on its performance. The constituent companies of this index have nearly two third of their earnings come from overseas from their operations spread across 150 countries. It has also been observed that between the FTSE 100 index and the British Pound Sterling  there exists an inverse relationship. Whenever there is weakness in the Pound Sterling most of the companies on the headline index enjoy better fortunes on account of higher sales.  It is usually a signal of a high earnings period for the exporters of that country when its currency starts becoming weak. This is true for other businesses who are dependent on these exporters, as well. Both the oil companies on the FTSE 100 index are major exporters domiciled in the United Kingdom.

In 2016, when the British Pound Sterling had weakened against most of the major currencies, both of these companies had performed well. They had declared dividends that were a fifth higher than their previous year dividends. This time also the same phenomenon seems to be repeating. The sheer size of both these companies ensure that they possess adequate leverage to turn the tides on a dwindling index performance.

BP Plc - BP Plc is the United Kingdom’s second largest multinational oil and gas company having operations in all three streams of the industry (upstream, midstream and downstream). As per Fortune Magazine, BP Plc stands at the seventh rank in its Global 500 list of the world’s largest companies in terms of revenues. As on 31 December 2018 the company had operations in over eighty countries producing over 3.7 million barrels of oil equivalent per day from proven oil asset reserves of 19.945 billion barrels of oil equivalent.

The company, now, has started to invest in renewable energy verticals like wind energy, solar energy and biofuels, other than in its traditional oil & gas verticals.

The shares of the company have their listings on the Frankfurt Stock Exchange, the London Stock Exchange, and at the New York Stock Exchange. The stocks of the company trade with the ticker name BP. on the London stock Exchange; with the ticker name BP on the New York Stock Exchange, and with the ticker name BPE5 on the Frankfurt Stock Exchange.

The shares of the company also form part of the FTSE 100 index of the London stock Exchange.

FTSE 100 & BP Plc - The International revenue profile of this company provides adequate safeguard to the FTSE 100 index to withstand effects of any economic downturn of the British economy. In fact, BP along with other such multinational companies on the index provide adequate risk mitigation to ward off more than proportionate volatility and ensure long term stability of the index.

This year, however, the company has not been performing well, on account of weakening of oil prices amongst a host of other factors. The same has also been the case of other major oil & gas majors of the United Kingdom.

Prices of crude oil are at a low of nearly US $55 per barrel, and there are also indications of further weakening in the time to come. The weak Pound Sterling has also not been able to push up the fortunes of the company and it is but unable to fulfill the anchor role it had played so far during trying times of the domestic economy.


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