BPT Investment Analysis Report & Stock Research, BP Prudhoe Bay Royalty Trust

Ockham's Rating/Recommendation Summary

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BPT Revenue

As a value investing shop, we are interested in seeing how BPT's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 9.38x and the low end of the range at 5.55x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for BPT of 11.31x is significantly above its historical average. This places BPT at the upper end of its historical range relative to sales per share and makes it difficult to suggest an attractive price outlook. At current sales per share levels, we would need to see a decline in the Price to Sales ratio of 51% merely to return BPT to its historical average.

BPT Cash Earnings

Looking at BPT specifically in their Cash Earnings capabilities, Ockham views BPT as significantly above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for BPT to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 10.68 and a 6.33 low over the same period.

Just recall that when a stock's price, as in the cases of BPT, is significantly elevated to the level of Cash Earnings being generated, the market has already priced in much of that value. For example, the historical average for BPT's Price to Cash Earnings ratio is 34% below the current ratio of 11.40. That is not an insignificant amount, and diminishes our overall outlook on BPT. However, you need to review several areas of a company's potential, and as management would point out, one metric is not the end-all-be-all of any analysis.

BPT Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for BPT to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for BPT is $14.45 producing a current dividend yield of 17.56%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from BPT against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from BPT over previous years was 28.88% while the lowest dividend yield was 7.58%. Management at BPT needs to get the current dividend yield above the historical median before we are comfortable from this point of view.