UBS downgrades Shell to 'neutral', says defensive advantage less apparent

UBS said it sees less upside at Royal Dutch Shell as it lowered its recommendation on the oil major from 'buy' to 'neutral'.

Shell's shares have fallen 15% in dollar terms over the last 12 months, compared with the wider European sector which has declined 20%.

"Through this outperformance and the more aggressive response to the challenging environment among some peers we see the shares as offering less relative value and hence are cutting the rating," UBS said.

The Swiss bank, which also lowered its target price for the shares from 2,400p to 2,130p, said it as disappointed with the company's response to recent challenging operating conditions.

"We felt at 4Q the unwillingness of Shell to provide hard numbers for capex cuts or cost improvements was disappointing. We understand the sensitivity at the company to too vigorous investment cuts […] but our concern is Shell looks behind the curve given vigorous responses elsewhere that likely mean the relative robustness of its earnings/cashflows/balance sheet isn't so clear cut," UBS said.

It said the stock has performed relatively well recently due to Shell's apparent "safe-haven status", but this is now priced in.

"With visibility around the underlying response to macro conditions now available across the sector we feel comfortable reflecting this in our rating and target," UBS said.

The stock was down 0.4% at 2,021.22p by 10:40 on Monday.