HSBC cuts targets on global integrated oil majors

Oil markets continued to be strongly oversupplied and the macroeconomic backdrop dire, but 'big oil' was adapting aggressively, which would see it through the storm in the short-term, analysts at HSBC said.

Be that as it may, the broker lowered its target prices for all the stocks under its coverage after marking down its Brent oil forecasts for 2016 to 2018 in a separate report.

"It may take some time for the oil market to normalise and for prices to recover significantly, but we believe the major oils are well placed to survive the short-term, sustain dividends through this period and capitalise on such a recovery," analysts Gordon Gray, Kim Fustier, Christoffer Gundersen and Swarup Bhattar said in a research report sent to clients and dated 24 January.

The analysts revised their earnings per share forecasts for so-called 'Big oil' by 45% for 2016 and by another 30% for 2017.

However, the hit to oil majors´ free cash flow was expected be less dramatic, with HSBC lowering its average projections for 2016 by 16% and by 9% for 2017.

Furthermore, the industry´s free cash break-evens were falling at an "encouraging" pace, the broker said.

Capital and operating expenditures were also set to be ratcheted lower, HSBC added.

Within the same report, HSBC lowered its target on BP´s stock from 430p to 405p, on that of Royal Dutch Shell from 1,720p to 1,339p, and on BG Group´s from 1,100p to 929p.