British investors keen to snap up beleaguered BP shares

BP, the worst oil investment this year on Wall Street, is finding its backers in the City of London.

Investors have bought more shares of BP than they have sold every day this month in London, according to so-called money flow data compiled by Bloomberg, even as the stock slumped to a 13-year low.

In contrast BP's American depositary receipts (ADRs) have recorded a net US$185 million ($260 million) outflow in New York since the April 20 accident.

As the worst oil spill in US history spurs attacks from President Barack Obama and soils Florida's beaches and the Louisiana marshlands, London investors are backing BP's embattled chief executive officer, Tony Hayward.

After a five-year string of accidents and deadly disasters at BP facilities, US Representative Bart Stupak suggested last week its safety record could justify pulling the company's operating permits in the US.

"There's a feeling in the UK that BP has been singled out unfairly and that there's long-term value in the stock," said Iain Armstrong, an analyst at Brewin Dolphin, which oversees more than US$31 billion in London and increased its BP holdings in May.

"In the US, it's a very emotive issue, and politicians are making it much more personal and vindictive."

Hayward drew criticism again this weekend after attending a yacht race off the south coast of England.

Hayward's attendance was "part of a long line of PR gaffes and mistakes," White House Chief of Staff Rahm Emanuel said.

BP agreed last week to cancel nine months of dividend payments, saving about US$7.5 billion, sell US$10 billion of assets and cut investment to raise cash to meet Obama's demand for a US$20 billion fund for spill victims.

"When people turn on the news they see this gusher pouring out," said Ronald Sorenson, chief executive of W. H. Reaves in Jersey City, New Jersey, which manages US$1.6 billion in assets, including BP shares.

"That puts a lot of pressure on advisers. Individual investors take this personally."

The London-listed stock is down 44 per cent since the explosion on the Deepwater Horizon rig that killed 11 workers and started the leak on the seabed. The shares fell to a 13-year low of £3.42 on June 15, wiping about £60 billion ($125 billion) off the company's value. BP closed at £3.57.45 on June 18.

Money flow attempts to measure the capital moving in and out of a security by adding the value of higher, or uptick, trades and subtracting the value of downticks. As prices fall, money flows are usually negative, turning positive as prices rise. A divergence between money flow and price may signal a change in the trend.

The method was pioneered by Laszlo Birinyi, founder of the research and money-management firm Birinyi Associates.

"People in the UK are buying the stock, taking advantage of the discount" since the stock plunged, said Cleve Rueckert, an equity analyst at Birinyi's firm. "But when a stock starts to slide like this, it's hard to say when it will turn around."

Birinyi's October 2007 forecast that a recovery in banks would be wiped out presaged an 82 per cent plunge in the Standard & Poor's 500 Financials Index up to March 6 of the next year.

The split over BP between British and US investors extends to analysts. The British stock has 26 "buy" recommendations, while 12 analysts recommend holding the stock and two say to sell. In contrast, almost as many US analysts advise against purchasing the stock as buying it.

The ADRs have seven "buy" recommendations, five "holds" and one "sell".

"I'm sure anger is fuelling the selling," said John Olson, managing partner at Houston Energy Partners, a hedge fund unit of Sanders Morris Harris Group. "We've had a media firestorm, and the flames have been fanned by the Obama Administration."

Moody's Investors Service cut the company's debt rating by three levels last week on concern litigation claims will be an "overhang" on BP's creditworthiness for years. Fitch Ratings pushed BP down six notches to two grades above "junk".

US lawmakers accused Hayward, 53, of stonewalling and dodging questions about the causes of the explosion when he testified before a Congressional committee last week. The New York Daily News had called the chief executive "the most hated - and clueless - man in America".

"I don't think the image that comes across in the States is at all fair to him," said Timothy Guinness, chief executive of Guinness Atkinson Asset Management in London, which owns BP shares.

"He is very hard working, conscientious, he is trying to do the right thing. The fall was overdone, the upside from here is quite significant."

Guinness said he's buying BP shares for more aggressive investors, anticipating a gain of as much as 50 per cent during the next year.

To turn BP around, Hayward will have to regain the confidence of US regulators, politicians and investors.

"When things look the worst, that's usually when the value opportunities present themselves," said Lothar Mentel, chief investment officer for Octopus Investments in London.

"But you do have to have a long-term perspective."

- BLOOMBERG