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Schroders increases BP exposure

Schroders income fund managers Nick Kirrage and Kevin Murphy increased their exposure to BP last week, amid US pressure on the firm to cut its dividend to pay for the Deepwater Horizon oil spill.

The pair, who recently took over the reins of the £1.52bn income fund from Nick Purves and Ian Lance, upped their BP holding from 2.8 to 3.5 per cent.

Kirrage acknowledged political considerations could force the company’s hand into a shortterm reduction in distributions but stressed BP’s long-term investment case remains attractive and that investors should focus on the potential for future share-price growth, not purely on dividends.

He says: “A reasonable estimate for the total costs of this environment disaster is $15bn. However, we believe in excess of $50bn would be required to put moderate stress on the balance sheet. The market clearly disagrees and has already removed more than $60bn from the company’s capitalisation.

“An unemotional appraisal of BP’s cashflows reveals that, at current oil prices, despite the assumed impact of the spill, BP has the ability to sustain its dividend.”

Whitechurch Securities senior analyst Ben Seager-Scott says: “One concern is always that new managers will do something radically different to the old ones but I am glad they have followed through and can make decisions that need to be made.”

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