Analysts at Citi remain bearish on Royal Dutch Shell (LON:RDSA), arguing that the energy major would be ‘particularly challenged’ if oil fell to $45 a barrel. The comments follow the Anglo-Dutch group’s move to restore its cash payout to shareholders earlier this week.
Shell’s share price tumbled in London in the previous session, shedding 1.74 percent to close at 2,366.00p, underperforming the broader market selloff, with the benchmark FTSE 100 index ending the session 0.90 percent lower at 7,393.56 points. The group’s shares have added more than 21 percent to their value over the past year.
Citi bearish on Shell
Citi reiterated its ‘sell’ rating on Shell yesterday, noting that the attraction of high dividend yields and the concept that they held more worth was understandable but questioning whether investors were correctly taking into account the costs involved.
“Constraining capex is a short-term solution where the consequences can be difficult to measure in the investment time-frames of a large oil company,” the analysts pointed out, as quoted by WebFG News.
The broker further noted that “reserve life will be a rich source of differentiation with low-cost asset holders or active acquirers faring well and those with a lack of 2017 activity looking most challenged”. At Citi's $55 a barrel base case, the analysts awarded Eni, Chevron, Total and ConocoPhillips with ‘buy’ ratings, but hit Shell with a ‘sell’ stance due to its “dramatically falling reserve life”.
On the other end, at $45 a barrel, Shell was said to look ‘particularly challenged’ to find opportunities to halt its already low and falling reserve life.
Other analysts on Shell
JPMorgan Chase & Co and Morgan Stanley, which see Shell as an ‘overweight’, both boosted their price targets on the stock yesterday, to 2,850p and 2,930p, respectively. According to MarketBeat, the oil major currently has a consensus ‘hold’ rating and an average price target of 2,437.40p.