Here's the next catalyst for BP shares

BP is becoming pretty ambitious as it gears up for what could be a "transformative" five-year period for the blue-chip oil major. And broker Barclays, a long-time fan of the £93 billion company, is equally optimistic.

Its headline price target on the stock is 625p, implying potential upside of a third and what would be its highest level since 2010. However, the uber-bullish case remains way up a record-breaking £8.

Barclays analyst Lydia Rainforth explained how BP starts on the road to these lofty heights Tuesday, and it all starts in a small Berkshire village called Pangbourne, home of BP's technology centre.

It's here, on Wednesday 14 June, that BP will hold its downstream investor day, where division head Tufan Erginbilgic is tipped to give greater detail and clarity around "ambitious" free cash flow (FCF) targets. This, according to Rainforth, will be "a key potential catalyst for shares".

BP is targeting $9-10 billion (£7-7.8 billion) of FCF from its downstream businesses (its service stations and marketing activities) by 2021. This "is still some 90% ahead of our own forecast and 70% higher than what was achieved in 2016", Rainforth points out.

She added that a successful rollout of a convenience offering similar to the one with M&S in the UK would enable BP to increase its profit per barrel sold – estimated to be 40% below a marketing peer group average – and go "a long way to delivering on the group's FCF aspirations".

Lubricants and manufacturing

"We expect the day to provide further insight into the retail expansion plans, how BP expects to grow margins in that business and also much more disclosure about current operations," writes Rainforth.

"Management from the lubricants and manufacturing businesses will also be present and ultimately the aim for BP is to deliver a higher level of confidence in the expected free cash flow profile of the business."

Amongst the questions both analysts and investors will be hoping for answers to are how much capex is required for the retail expansion plans? What the US retail strategy is? And how will food and convenience profit be split with the retailer?

So, does this all sound achievable? Well, "an uplift in per-barrel profitability of $1.5/bl, or 70%, would enable BP to meet figures presented in the strategy update", Ranforth concludes. "Although a significant step up, this would not be stand-out within the convenience and fuel retailing sector."

Whilst Rainforth's base case is still 625p for BP, she also mentions an upside case of £8. This case assumes average long-term oil prices recover to $85/bl and BP captures one-third of the upside from the downstream FCF projections.

But she also thinks BP can get to £8 in a flat oil-price environment if it achieves those lofty downstream ambitions.

What is clear to Rainforth, though, is that, with its generous dividend yield of 6.5%, BP shares, currently trading at 472p, are "materially undervalued".

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.