Shell PLC (LSE:SHEL, NYSE:SHEL) has been downgraded by equity analysts at investment bank UBS, who predict it will take longer for the oil company to transition to low-carbon energy than its peers.
UBS has downgraded its rating for the oil company from ‘buy’ to ‘neutral’, explaining that its low-carbon strategy will take years to have an impact.
The bank cut its share price expectations for Shell to a target price of 2,600 pence per share, only marginally ahead of the company’s share price as of 12 January 2024 of 2,461p per share.
Analysts questioned how much value is in Shell’s low-carbon investments, as they are unlikely to represent more than 10% of group earnings this decade.
Shell is spending 14% of available capital expenditure on the transition to low-carbon energy, but being slower to transition than rivals, these costs are expected to rise to 25% by the end of 2030.
While the compound annual growth rate of its earnings from low-carbon activities is estimated to be about 16% over the next three years, these profits are not expected to comprise more than 10% of group earnings until after 2030.
Analysts also warned of a cut to consensus estimates, a slowdown in Shell’s share buyback programme and a "gradual rebalancing" of liquefied natural gas (LNG) markets.
Shell’s new chief executive Wael Sawan has said he plans to enhance company profits by scaling down its investments in renewables and boosting fossil fuel production.
The company was criticised by a group of 27 investors this week over its approach to the climate and green energy.
Spearheaded by activist shareholder Follow This, the group of asset managers and other investors filed a resolution calling for the company to tighten its climate targets, which will be subject to a vote at Shell’s next annual general meeting.
UBS analysts said Shell’s share price has outperformed the energy sector by 7% over the past year.
But while the stock is "better positioned" on total distributions, with a yield of 10.2% not far behind the average, this is still below large-cap peers such as BP.
According to analysts, Shell also remains the "most exposed" of the largest energy conglomerates to LNG prices.