Broker tips: Tullow Oil, BP, Shell
By Iain Gilbert
Date: Thursday 20 Feb 2025
(Sharecast News) - Analysts at Canaccord Genuity lowered their target price on exploration and production firm Tullow Oil from 35.0p to 25.0p following the group's recent trading update.
Canaccord Genuity said Tullow's trading statement illustrated some of the challenges related to the Jubilee site, the company's primary producing asset.
The Canadian bank expects it to take "a little time" for Tullow to gain greater clarity on the optimum development path for the field but said it also believes the Jubilee risk profile has increased.
"Alongside those critical operational issues, Tullow has some balance sheet work to do - a planned note repayment ($492.0m, maturing March 2025) and a more significant refinancing ($1.38bn notes, maturing May 2026). The first repayment looks covered by cash and untapped liquidity; the second presents greater challenges, in our view," said Canaccord Genuity.
"Tullow's equity value is very sensitive to small changes in Jubilee CoS and minor adjustments to oil price assumptions. That presents a significant valuation challenge, which even our quite tight parameter range (above) results in a wide equity valuation range of 14.0-36.0p. We continue to note the emerging and increasing risk around Jubilee and the possible implications for the company's planned refinancing in 2025."
JPMorgan Cazenove upgraded BP on Thursday as it took a look at EU oil and gas stocks and considered the implications of a Russia/Ukraine ceasefire.
The bank said it expects the sector to be viewed as a net loser as the market infers a peace deal bringing additional Russian pipeline gas flows into Europe.
JPM upgraded BP to 'neutral' from 'underweight' and lifted the price target to 510p from 440p as it said the outsized Rosneft option value mitigates cash cycle tensions.
"Rosneft optionality makes BP a prime ceasefire beneficiary," the bank said. "This presents a deleveraging 'silver bullet' which mitigates previously analysed cash cycle tensions."
Analysts at Berenberg raised their target price on energy giant Shell from 3,150.0p to 3,250.0p on Thursday, stating the group's strategy update would drive further free cash flow growth.
Berenberg expects Shell's core principles to remain the same, with a focus on strong execution, capital discipline and continued growth in free cash flow per share, along with a potential focus on boosting returns in its chemicals business and some of the "more challenged" low-carbon businesses.
The German bank noted that while lower capex "comes at the cost of potential lower growth in the longer term", Shell shareholders were "being well compensated", with the majority of the 13% FCF yield being returned via dividends and buybacks, which it expects to be maintained at roughly $14.0bn for 2025.
"The stock remains inexpensive, trading on 9.4x 2025E P/E and 5.0 EV/DACF," said Berenberg. "We adjust our estimates and EPS falls 2% for 2025E, due to lower integrated gas earnings, and increases 6% for 2026E due to stronger assumed downstream earnings. We increase our price targets to 3,250.0p and €39 (from 3,150.0p and €37.5, respectively) - based on a target 5.8x 2026E EV/DACF multiple."
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