Broker tips: Shell, Astrazeneca, Croda

Berenberg upgraded its stance on shares of oil giant Royal Dutch Shell to ‘buy’ from ‘hold’ on Wednesday, noting the stock has fallen around 50% this year.

Berenberg said that while the environment remains very challenging in the near term, Shell has adapted to a low price environment, leaving an increasingly attractive risk/reward skew for the stock.

It noted the company’s "solid" set of third-quarter results last month, with cash generation up substantially sequentially and the fact that it generated $9bn of operating cash flow in the quarter, pushing net debt down by $4.4bn.

"The quarterly dividend was increased by 4% and Shell laid out the roadmap to material buybacks, likely from 2022, in our price scenario," it said.

"Less than 18 months ago, Shell pledged to return $25bn per year to shareholders in a $60/bbl environment; this would be a 22% return based on today’s share price."

Berenberg said the key catalyst remains a recovery in oil demand driving higher oil prices and refining margins.

HSBC upgraded AstraZeneca to 'hold' based on stronger commercial delivery and expected further good news about Covid-19 vaccines.

AstraZeneca's results showed good execution of its research pipeline with strong performances from cancer treatments Tagrisso, Imfinzi and Lynparza, HSBC said. The bank's analysts said they had harboured concerns about AstraZeneca's ability to turn research into revenue.

After Pfizer's announcement that its coronavirus vaccine, developed with BioNTech, was effective against Covid-19, HSBC said further positive news about vaccines should support the shares of AstraZeneca, which is working on a vaccine with Oxford University.

HSBC's analysts increased their rating on AstraZeneca shares to 'hold' from 'reduce' and nudged up their share price target to £72.60 from £71.20 but reduced their 2020 forecasts, predicting 8% revenue growth to $26.4bn and core earnings up 16% to $4.08 per share.

"AstraZeneca has begun successful execution of its R&D pipeline," analysts Julie Mead and Steve McGarry said in a note to clients. "We expect more Covid-19 vaccine news flow on the horizon that suggests the shares are likely to be supported at current levels."

JPMorgan Cazenove downgraded its stance on shares of specialty chemicals company Croda International on Wednesday to ‘underweight’ from ‘neutral’, pointing to an expensive valuation and already full 2021 consensus.

The bank said there is 15% downside potential even on its upgraded optimistic December 2021 end price target of 5,700p, which has been lifted from 4,250p.

It noted the shares jumped 7% on Tuesday after Croda said it had agreed with US-based Pfizer to supply excipients used in the manufacture of its Covid-19 vaccine candidate.

"These excipients come from Croda's recent acquisition of Avanti Polar Lipids. We estimate the deal to be value neutral as it will likely result in an earn-out payment (up to $75m) to the previous owners of Avanti which should broadly offset the three years’ earnings contribution from this vaccine," JPM said.

"Thus, the stock reaction yesterday seems excessive to us. Even including the contribution from the Pfizer Covid-19 vaccine (around 8% earnings per share uplift in 2021E), our 2021E EPS is in line with 2021 Bloomberg consensus as the consensus was already stretched, in our opinion."

JPM said that fundamentally, it likes the company but not the valuation.