UBS reiterates buy on Royal Dutch Shell

Following regulatory clearance from Australia for Royal Dutch Shell's purchase of BG Group, analysts at UBS reiterated their ‘buy’ recommendation on shares of the the oil major.

They also told clients they should expect the spread between the share price of BG and Shell’s buy-out offer to shrink further, given the improved visibility on a deal close.

Now, the last remaining hurdle was approval from China’s MOFCOM.

Over the last six trading days the difference between the BG share price and the implied Shell offer (dividend adjusted, assuming close after 19 February) had decreased by about 410 basis points to stand at 7.7%

Analyst Jon Rigby referenced a report in the Sunday Telegraph according to which MOFCOM was expected to clear the deal before Christmas and a February close looked feasible.

On the back of the above, the Swiss broker reaffirmed its 2050p target price, which resulted from setting a 5.8 times 2017 EV/DACF multiple (six times in pro-forma terms). While that was higher than its sector peers which were on 5.5 times, its forecasts for a rapid increase in cash-flow thereafter meant such an increase was warranted, they believed.