Barclays upbeat on outlook for BP and Royal Dutch Shell

Barclays upbeat on outlook for BP and Royal Dutch Shell

Analysts at Barclays sounded an upbeat note on Big oil, telling clients that companies in the space remained free cash-flow positive in the first quarter of 2019, with management teams’ commitment to both discipline on capital expenditures and shareholder returns seen driving a “re-rating” in share prices over the next 12 months.

“The near 30% recovery in the Brent oil price over the last 12 weeks has brought a sense of optimism back to the oil sector, and we see the commitment of the management teams to capex discipline and shareholder returns as driving a re-rating of the sector over the coming 12 months,” they said.

For the first three months of the year, Barclays also expected seasonally lower costs bases – as capex outlays declined by 20% against the last three months of 2018 – and its assumptions for the impact of IFRS 16 to help push companies’ organic cash breakevens down by 7% versus the fourth quarter of 2018, to $48 a barrel on Brent.

Nevertheless, the sequential drop in oil prices and downstream margins was expected to result in a 17% drop in sector net income quarter-on-quarter.

Its key ‘overweight’ recommendations were Royal Dutch Shell (target price: 3250p), Neste (target price: €38), BP (target price: 700p), Total (target price: €65) and Equinor (target price: NOK270).

For the nearer-term however, while Neste and BP looked “relatively advantaged” going into the first quarter results, there was a greater risk to the numbers for GALP (taget price: €16.5) and Saras (taget price: €1.7).

Source: ShareCast

Published: 04-04-2019