BP (LSE: BP) reached an important turning point this week. The FTSE 100 firm has announced the planned closure of its Deepwater Horizon claims facility.
It's now been nearly eight years since the Gulf of Mexico disaster, during which the company has paid out more than $63bn in fines and damages. Along the way, the oil market crashed, putting even more pressure on BP's balance sheet and cash flow.
At over 500p, the stock is up by more than 50% on its 2016 lows. The shares have probably moved out of value territory, but the dividend yield remains attractive at 5.5%. As I'll explain, I think the shares could prove to be cheaper than they seem.
What comes next?
BP's financial situation isn't completely untarnished by the pressures of recent years. Net debt of $39.8bn is slightly higher than I'd like to see, and the dividend has not been covered by earnings since 2014.
However, extensive cost-cutting and restructuring means an oil price of $50 per barrel is all that's needed to achieve balanced cash flow. Anything above this level should mean that BP's operations start to generate surplus cash.
Given that the price of oil is now close to $70, I think there's a decent chance that management will upgrade 2018 guidance when the 2017 results are published next month.
Even without this, current forecasts suggest that BP's adjusted earnings will rise by a further 39% to $0.42 per share this year, bringing the dividend of $0.40 per share back under cover (just).
Although the shares may look fully priced on a 2018 forecast P/E of 17, I think the 5.5% dividend yield is a more accurate reflection of value here. I expect earnings to rise significantly from current levels over the next few years, and would be happy to buy today.
Time for a change
Insurance firm Esure Group (LSE: ESUR) surprised the market with a double-barrelled trading update this morning. On the one hand, the group's gross written premiums rose by 25% to £820m last year, while policy numbers rose by 9% to 2.4m.
Both figures suggest faster growth than in 2016, and this is confirmed by management guidance for a pre-tax profit of £95m-£98m. That's 30%-35% higher than in 2016, when pre-tax profit 'only' rose by 19%.
There was just one surprise. Although Esure's growth remains on track, the company also announced the immediate departure of its chief executive, Stuart Vann.
Mr Vann has been at the company since its foundation in 2000, and seems to be departing on friendly terms. However, an immediate departure is slightly unusual.
The text of today's announcement suggests to me that chairman and founder Sir Peter Wood has his eye on broadening the firm's market.
To help evolve Esure's long-term strategy, the board wants to replace Mr Vann -- an accountant with two decades of insurance experience -- with someone who has "significant expertise and experience in a broad spectrum of customer-facing businesses"
I suspect we'll find out more about Sir Peter's vision for the future when a new CEO is named. But in the meantime, Esure continues to look like a tempting income buy to me, with a 2018 forecast P/E of 12 and a prospective dividend yield of 5.5%.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended BP. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.