See the mighty fallen. Oil giant BP (LSE: BP) and miningbehemoth Anglo American (LSE: AAL) have continued their precipitous descent,crashing6% and 16%, respectively, in the last month alone. Over the last year, theyre down 24% and a mind-boggling 77%. Things can only get better, cant they?
BP in troubled waters
Things got worse for BP this week with the share price ending Tuesdaya whopping 9.35% down(and taking the entire FTSE 100 lowerin the process). A reported$2.6bn of writedowns and restructuring charges doth a market meltdown make, as BP posted a $3.31bnfourth quarter loss and a $5.9bn plunge in full-year underlying profits. This is no crash in the pan, BP has been on a losing streak ever since the Deepwater Horizon disaster, which is soon coming up to its SIXTHanniversary.
Its hard to believe that BPs share price once topped700p (nearly 10 years ago) and even harder to believe it could re-scale those heights, starting from todays 330p. BP needs oil to hit $60 simply to make its sums balance. As I write this, Brent crude trades at $32 after a franklypatheticattempt at a fightback. While it stays at todays levels, BP will continue to lose big money on its upstream business.
Dividend danger
BP currently yields an insane and ultimately unsustainable 11.9%, at a cost ofaround $7.3bn a year. That tooka large bite outof its $20.3bn cash flow in 2015, whichalso hadto cover $17bn of capital expenditure. If the dividend is to continue flowing, BP either needs to raise more debt, or the oil price needs to rise.
At some point, of course, oil will rise. Todays supply glut willeaseas the industry slashes hundreds of billions of dollars of investment and shale hedges run out, upping the pressure on US drillers. Analysts are talking of the price hitting $60 or even $70 andI tendto agree. Oil must rally and when it happens it could rise as swiftly as it fell. Butthese things are impossible to time, and the risemay not arrive in time to save the dividend. I think theresworse to come, even thoughultimately things will get better at BP.
Anglo American dreamers
I wish I could say something positiveabout Anglo American, but I think the commodity blow-off has further to go. I cantsee a revival in Chinese demand asit shifts from infrastructure and exports to mature consumption. At least the dividend is no longer in doubt: you wont get one this year.
The good news is that Anglo Americans production has risen strongly toboost revenues, the downside is that it will add to the market glut of metals and minerals. Achieved prices arein freefall, with iron ore down 40% in the second half of last year, copper falling 24%, nickel down 32% and coal around 20% lower.
Anglo Americans pre-tax profits are forecast to fall from 1.54bn last year to 1.1bn in 2016 (they were 10.78bn in 2011), whileearnings per share are predicted to drop 36% to 33.47p. I really cant see Anglo American enjoyingmuch respitethis year and fantasticalnumbers such as a p/e ratio of just 2.1suggestits troubles arefar from over.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
