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Royal Dutch Shell seen as a ‘buy’ at HSBC

HSBC upgrades from 'hold' not long after Shell confirmed “unsurprisingly weaker cashflow”.

BP PLC - Royal Dutch Shell seen as a ‘buy’ at HSBC

Analysts at HSBC today gave a rather tepid upgrade for Royal Dutch Shell Plc (LON:RDSB) moving to ‘buy’ from ‘hold’ – but also describing the London listed stock as “unloved, but holding up under pressure”.

Following on from Shell’s recent quarterly results - which confirmed “unsurprisingly weaker cashflow” - HSBC analyst Gordon Gray, in a note, almost apologetically took a positive stance on the share.

“We have cut our cash flow estimates by an average 3% for 2020e to reflect recent price and margin weakness, but cuts to longer term estimates are not meaningful,” the analyst said.

“We have also cut our target prices by an average of 3%, reflecting the likelihood that the sector re-rating could take longer than we had previously expected.

“Nevertheless, average upside to our target prices is now 20%, indicating an attractive sector risk/reward balance after the recent underperformance.”

Describing the oil market context, that analyst said: “The latest weakness in crude prices comes on top of record lows in natural gas prices and severe pressure on downstream and petrochemicals margins.”

He added: The sector's weakness in 2019 mirrored a sharp downtrend in consensus estimates.

“Consensus may not have bottomed yet - much depends on the ongoing impact of the coronavirus on hydrocarbon prices and other margins.

“However, we could well see it bottoming in the coming months.

On the positive side Gray noted that there was evidence of management confidence though with dividends being increased and a sustained share buy-back programme.

BP PLC (LON:BP. is HSBC’s preferred stock in the sector.

Quick facts: Royal Dutch Shell PLC

Price: 995.2 GBX

Market: LSE
Market Cap: £77.7 billion


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