Shell’s ‘stronger’ trading performance finds favour with broker Proactive uses images sourced from Shutterstock
Shell PLC’s (LSE:SHEL, NYSE:SHEL) latest ‘stronger’ trading update has earned the oiler an upgrade among the analysts over at UBS.
The Swiss bank’s analysts have lifted their first-quarter profit forecast by 18% after Shell’s update pointed to improved trading, lower upstream taxes and firmer downstream volumes, though the bank stopped short of turning more bullish on the shares – it is sticking to a ‘neutral’ rating and 3,850p price target, which implies roughly 8% upside.
UBS described the performance as solid despite disruption. Specifically, the upgraded forecast comes chiefly due to better-than-expected liquids trading, alongside a lower tax charge in upstream and healthier volumes in downstream operations.
On cash flow, meanwhile, UBS said the “main negative surprise” was a larger-than-expected working-capital build of US$10 billion to US$15 billion, versus its earlier US$5 billion assumption, as well as a US$3 billion to US$4 billion non-cash increase in shipping-related lease liabilities. That leaves the bank expecting Shell’s net debt, including leases, to rise by US$11.2 billion quarter on quarter, even though it sees the effect as temporary.
Looking ahead, UBS now forecasts cash flow from operations excluding working capital of US$16.3 billion, around 30% above its previous estimate and roughly 50% ahead of consensus, helped by derivative inflows. And, even with the debt increase, the bank said it still expects Shell to keep buybacks flat at US$3.5 billion when it reports first-quarter results on 7 May.