Shell cut to 'hold' by Berenberg on cloudy outlook

Shell cut its first-quarter dividend by two-thirds to 16 cents a share on Thursday to conserve cash after the Covid-19 crisis hammered oil demand and prices. The cut was the first by Shell since the second world war.

Berenberg said Shell would benefit from any recovery in oil prices and the wider economy and the dividend cut will support its balance sheet but the future is uncertain. The broker cut its rating on Shell shares to 'hold' from 'buy' though it increased its price target to €16.70 from €16.30.

"The strategy beyond the immediate crisis appears unclear at this point, however, as does the path to higher cash flow or shareholder returns, and the broader capital allocation framework as the situation normalises," Berenberg analyst Henry Tarr wrote in a note to clients.

Tarr said he expected a mix of dividend growth and buybacks when Shells gearing is reduced and that the company had more scope to increase investment in low carbon technologies. As the balance sheet improves Shell may also turn to acquisitions to accelerate its progress.

But the outlook for the second quarter highlights business disruption. Production is expected to fall by 26% due to Opec+ cuts and shut-ins linked to infrastructure constraints or the economy, Berenberg said.

The increased price target "leaves limited upside" after the shares' rally over the past month, leading to the downgrade to 'hold', Tarr said.