Credit Suisse starts Shell at ‘outperform’, BP at ‘neutral’

Credit Suisse initiated coverage of BP and Shell on Thursday as it said in a note that it is positive on integrated energy, but in its relative ratings framework, the bank’s bottom-up stock picking is nuanced to reflect what the market is pricing in.

It started Shell at ‘outperform’ with a 3,000p price target, saying the oil giant is its "top pick" with the highest free cash flow yield among the supermajors, and an integrated energy model that is underappreciated by investors.

"Shell’s energy transition strategy stands out as the most progressive in terms of decarbonisation and, at the same time, for generating strong cash flow that supports shareholder distributions in the near and medium term," it said.

CS forecasts average cash flow from operations of $47bn for 2021-26E, "comfortably" covering its cash capex while delivering on its commitment to pay out 20-30% of its CFFO as shareholder distributions.

CS initiated coverage of BP at ‘neutral’ with a 440p price target. It has high-quality hydrocarbons portfolio, but its near-term targets to grow its Customers & Mobility theme may leave it exposed to scaling back its targets, the bank said.

The bank noted that management’s 2025 EBITDA target of $38bn can be broadly characterised as a flattish underlying hydrocarbons business and growth in Convenience & Mobility.

"We have confidence in its 2025 hydrocarbons EBITDA target of $31bn, but its Convenience & Mobility EBITDA target of $7bn in 2025 looks stretched; this is the key reason our Customers & Products division FY23E EBIT is around 10% lower than consensus.

"Strength in commodity prices is boosting short-term earnings, but in our view a need to recalibrate Convenience & Mobility targets will hold back relative performance."