BP rally continues as it rules out issuing new shares

Shares in BP are winning back more of the ground lost over recent months after it reassured investors it would not issue new shares and RBS said the group is undervalued.

BP shares added 3.96%, or 13.2p, to 346.51p. Shares are still down 47% from highs on April 20 on the eve of the disaster at its Deepwater Horizon rig that killed eleven workers.

A BP spokesman said: ‘We are not planning to issue new equity to anyone.' 

He said: 'BP welcomes interest from new shareholders and existing shareholders who want to add to their holding.'

The comments come after reports yesterday that BP had been in touch with potential and existing shareholders in the Middle East hoping to find a strategic investor.

Analysts dismissed the talk saying BP didn't need the cash and shareholders said they would not back such a move.  

RBS analyst David Cline upgraded his recommendation on BP to 'buy' from 'hold' and set a new 455p price target, saying the sell-off in BP shares has discounted the most pessimistic of his possible scenarios.

He said shares have fallen around £1 per share more than is justified by his base case scenario for costs from the Gulf of Mexico spill.

He said the first relief well should be completed by mid-July and that will be a turning point for BP's shares.

'Stopping the flow of oil will cap the physical volume of the spill, reduce the daily costs being incurred, cool the political temperature and, if BP's share price remains excessively depressed, it could trigger credible merger speculation,' he said.

The comments come as The Times newspaper reported that the Department for Business and the Treasury has drawn up contingency plans in case BP collapses.

The government's concerns over the future of BP focus on its position as a large employer, its ownership of large part of the UK infrastructure and strategically important assets like the Tbilisi-Ceyhan pipeline, and the dividends it has generated for pension funds, the paper said.