Analysts at RBC Capital Markets took a look at oil and gas giant BP on Monday morning, saying they believed its cash flow framework would improve in 2018 as a result of a growing upstream base and favourable dynamics in the downstream, the latter of which it felt "may be underappreciated by the market".
RBC upgraded BP to 'outperform' from 'sector perform' and raised its target price to 570p from 550p, citing continued earnings momentum, both in the upstream and downstream, and more importantly improved cash conversion throughout the year as its principal reasoning.

"2017 was a transition year for BP, with a number of major projects in final execution stages and still a significant Macondo burden. We look to 2018 for continued earnings momentum both in the upstream and downstream, and more importantly, we expect cash conversion to improve this year," wrote analyst Biraj Borkhataria.

In terms of risks to its target price, RBC warned that BP's addition of fixed cash payments relating to the settlement on the April 2010 Deepwater Horizon oil spill would see the firm hit with a cash charge of $3.1bn in 2018, with a reduction to $2bn in 2019, with the investment bank also noting that it was expecting BP to "de-leverage more slowly than peers in a higher oil price environment".

"BP trades on a ~6.1% dividend yield, which we see as well covered on an organic basis between $50-55/bbl. We expect improving earnings and cash generation to show through in early 2018 as BP captures higher commodity prices and widening crude spreads. BP trades on 6.1x EV/DACF in 2019E versus the global sector average 6.8x and the European average at 5.9x," Borkhataria concluded.

As of 1420 GMT, shares had picked up 1.11% to 481.40p.

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