Lukoil and BP Comparison - Case Study Example

The following tables detail BP and OAO LUKOIL share price, basic income per share, and the price-to-earnings ratio:

Sample Computation: ( LUKOIL 2005)
P/E = Share Price / Basic Earnings Per Share
= 59.40 / 7.91 = 7.51

BP, having wider operations than LUKOIL, registers a higher P/E ratio. However, computing the rate of change of the P/E, it is found that LUKOIL is registering much higher growth than BP. The results are shown below:
The computation for the rate of change was carried out using the following equation:

Rate of Change = ( P/E for Year End – P/E for the Previous Year End) * 100%
P/E for the Previous Year's End

With this information, it can be seen that LUKOIL registers double digits for the P/E ratio. This growth essentially tells the investor that LUKOIL is outperforming BP. Although the investor can expect higher returns for BP, this may not be the case in the future as LUKOIL’s P/E growth rate is double that of BP.

Forecast
The most recent available projection for LUKOIL is a 9M 2006 projection and is conveniently compared to 9M 2005.
The P/E ratio is expected to increase as Basic Earning Per Share is also up with the share price expected to increase because of the good performance of LUKOIL. The company is currently very aggressive in entering and capturing a major portion of the US market. It has already purchased rights to Getty and its oil distribution facilities in the US. With regards to BP, the P/E ratio is forecasted to increase as well although it might not be as high as that of LUKOIL due to an accident in one of its plants in Texas where almost USD 700 million was paid to those affected. This does not include losses in production and sales.

Conclusion
LUKOIL is getting very attractive to investors due to its excellent performance as evidenced by its financial ratios – the most telling of which is the P/E ratio. Read More