Berenberg retains rating on Shell, flags 'challenging' quarter

Berenberg has retained its ‘hold’ rating on Royal Dutch Shell, but warned downgrades to earnings forecasts were likely.

Updating on trading on Wednesday, the oil and gas giant said conditions remained challenging and announced plans to cut between 7,000 and 9,000 jobs as it responded to a collapse in oil prices and sought to reposition itself as a green energy provider. Shell believes the overhaul will result in $2bn to $2.5bn in extra savings by 2022.

In a flash note published shortly afterwards, Berenberg said the restructuring would contribute to an announced underlying operating cost reduction of between $3bn and $4bn by the first quarter of 2021.

But it continued: “Overall, the outlook is for another challenging quarter.” The bank said the integrated gas business will be affected by weak lagged prices while upstream is likely to report a loss. The downstream business will have been hurt by weak utilisation, it added.

“In addition, trading and optimisation results appear to be lower than average across all divisions,” the bank said. “We would expect this announcement to drive lower earnings forecasts for the third quarter and the 2020 full year.”

Berenberg has a price target of 1,450.0p on the Anglo-Dutch company’s A shares, and a target of €17.0 on the B shares. It has left those targets unchanged.

As at 1400 BST, Shell's London-listed shares were largely flat at 983.8p. Shell, which employs around 83,000 people globally and around 6,500 in the UK, will publish its third-quarter results next month.