BP plc or BBA Aviation plc: which one should you buy?

Today I'll be discussing the outlook for global aviation services firm BBA Aviation(LSE: BBA), and oil & gas supermajor BP(LSE: BP). Which of these companies is worthy of your hard-earned cash?

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Best of both

Aviation services firm BBA Aviation has suffered from poor investor sentiment over the past year with the shares falling from highs of over 250p in 2015 to lows of 150p at the start of 2016. The shares have since bounced back to 190p, but are nevertheless trading 21% lower than a year ago. Last year the FTSE 250-listed company reported an 8% decline in earnings on lower revenues of $2.13bn, compared to $2.29bn a year earlier, and the shares have been duly punished.

But I believe there's a buying opportunity here despite consensus forecasts of a small 2% fall in earnings this year, as the company is expected to bounce back in 2017 with 18% growth in underlying profits. The shares are trading on 14 times forecast earnings for this year, falling to a modest 12 times for the 12 months ending December 2017. What's more, the dividend payout looks tempting too, with prospective yields of 4.6% and 4.9% forecast for 2016 and 2017, respectively. The shares look very tempting for investors seeking both solid dividend income and capital growth.

Dividend appeal

Oil giant BP announced this week that it had doubled its interest in the Culzean gas development in the Central North Sea, which will eventually produce enough gas to meet 5% of total demand in the UK. BP regards the North Sea as an integral area of the business and is currently in the middle of a five-year programme that will see £7bn ploughed into the area with its joint venture partners. The gas field is the largest to have been discovered in the UK's North Sea in over a decade and was sanctioned at the end of August 2015 with production expected to run beyond 2030.

This year, market consensus expects BP's profits to remain broadly flat at around £2.4bn, increasing to £5.1bn next year. This would leave the shares trading on a price-to-earnings ratio of 29 for this year, falling to 13 for the period ending December 2017. BP's shares are trading 20% lower than a year ago, meaning higher prospective dividend yields of 7.4% for the next couple of years.

The verdict

Investors looking for both value and income should certainly look at BBA Aviation. The shares seem oversold after last year's sell-off, and I can see significant upside potential over the medium term. Income seekers should also find them appealing given the attractive dividend yields approaching 5%.

BP remains a favourite for long-term income investors looking for exposure to the oil sector. The company has maintained its dividend despite payouts not being covered by earnings. But many now fear that the dividend could be cut in the future if the oil price remains subdued over the longer term. For me, BBA Aviation is a far better investment for both capital growth and reliable income.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.