Investment Analysis of Stock Offerings of British Petroleum

1026 Words5 Pages
From: Investment analysis team To: Potential Investor

Subject: Investment Analysis of Stock Offerings of British Petroleum

BP’s stock offering, which is part of the government’s decentralization plan, has come at a time when markets are still feeling the aftermath of what has been the biggest one day drop in history. This has caused detrimental effects on the market which is felt by most, if not all companies. What could have been an attractive offer has turned sour as BP’s stock price dipped dramatically.

Upon analysing this fund-raising issuance along with the current market environment, we have concluded that this offering is not as valuable despite the addition of the repurchase plan (put option) after the first payment.
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Instead of having the customers pay 1.2 on the first date and 1.05 each on the second and third payment dates, a payment scheme of 1 on October 1987 and 1.15 on August 1988 and April 1989 will make the BP stock offering a better one. Values higher than the payment amounts are what we need since it will allow investors to have payoffs regardless of the movements of the stock price. Compared with the value in Annex 4, the payoff in this recommendation is 0.03648, compared to simply changing the put price, which yields a payoff of 0.00003. If this payment scheme is applied, the breakeven price for the option strike price significantly decreases to around 0.6338.

Combining these two changes together, the investment becomes more valuable. Our computations show a payoff of 0.1459 when the strike price is 0.85 and changing the payment scheme to 1.0 on October 1987 and 1.15 each on August 1988 and April 1989.

To sum everything up, this stock offering is not a good investment on its current terms. The repurchase plan may have given the issuance a little boost but it really hasn’t given enough to make BP’s stock offering beneficial to the investor. However, should management decide to change the factors such as the stock price
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