Broker tips: Shell, Barclays, Inmarsat

Analysts at Societe Generale upgraded their recommendation on shares of Royal Dutch Shell, telling clients they expected the stock's underperformance and oil price weakness over the past three months to go into reverse in the backhalf of 2017.

"This is an opportunity to buy Shell's rapid transformation into a world class investment case," they said, lifting their recommendation on the shares from 'Hold' to 'Buy'.

In particular, they highlighted the outfit's cash generation during the first three months of the year - which was the highest among its peers.

Shell's annualised free cashflow already more than covers its dividend cost and $25bn of a planned $30bn asset disposal programme is already underway.

"Annualised, the 1Q organic free cash flow with Brent at $54 per barrel is already at the targeted 2020 level - and the process is clearly in the early stages."

Goldman Sachs has downgraded Barclays to 'sell' from 'neutral' and lowered the bank’s target price by 28% to 180p, citing concerns about a potential narrowing of its capital gap.

The US bank said on Friday that a question remains about whether Barclays will have to build capital in order to narrow the gap between it and its UK and European IB peers.

"Since the beginning of the year, the capital gap between Barclays and its UK and European IB peers has widened meaningfully. The key question is whether Barclays will need to continue to build capital to narrow this gap, while its peer group focuses on capturing revenue growth," Goldman said in the note.

GS said Barclays is not likely to opt for an external capital raise in order to bridge the gap, but that alternative measures - such as incremental asset cuts or maintaining the current level of dividends for longer - are not without cost.

Regulatory hurdles will also be a hindrance to Barclays in coming quarters, according to Goldman.

Although Inmarsat is "well set for recovery", Barclays has downgraded its shares to an 'underweight' rating from 'equalweight' due to concerns over demand in the medium-term.

Following Inmarsat's "solid" first-quarter results the previous day and combined with contract announcements for its GlobalXpress high-speed satellite broadband over the past six months, Barclays sees the company as "well set for a revenue recovery and to meet its 2017-18 guidance".

However, analysts said their mid-term concerns remain: "supply is set to increase materially whilst demand growth should be more volatile; technological obsolescence is a question mark with VHTS [very-high-throughput satellite] around the corner", with the V-2 launch expected in June.

With the stock having recovered from its lows, the valuation now looks "unappealing", analysts said and while they edged the target price up to 750p, this implied around 9% downside and hence the downgrade.