19 April 2017
In a note to clients, the US bank cut its stance on BP to ‘neutral’ and chopped its rating for Shell to ‘sell’ after scrutinising recent annual reports
In a note to clients, the US bank cut its stance on BP to ‘neutral’ and chopped its rating for Shell to ‘sell’ after scrutinising recent annual reports.
Citigroup’s analyst said: “Fine-print of 2016 annual reports indicates that most Big Oil companies still believe in 70-80s oil prices longer term.”
They added: “This is not to say companies can’t manage at lower prices (as strategic updates all claim), but does suggest the sweet-spot of financial firepower – and therefore higher returns to shareholders – still requires significant price recovery.
“Further cost take-out looks needed to truly align these businesses to the 50-60s oil price cap that we think is set by US shale.”
Dividend concerns …
The analysts said: “A deepening of structural reforms is surely going to have to address the high cost of dividends that, for the most part, has not yet been reset.”
They added that, in their opinion, BP and Shell “have the biggest questions to answer.”
The analysts concluded: “We think management perseverance will prevent either from cutting dividends in 2017, but we think yields can still expand: RDS due to under-investment concerns and BP due to balance sheet concerns.”
In reaction, BP shares on the FTSE 100 index shed 0.9%, or 4.05p at 448.55p, while Shell B shares were down 1%, or 21p at 2,104p.