Berenberg has reiterated its 'buy' rating on Shell PLC (LSE:SHEL, NYSE:SHEL), raising its price target to 3,250p from 3,150p, citing expectations of continued strong free cash flow and shareholder returns.
It expects Shell’s strategy update on March 25 to maintain its focus on capital discipline and free cash flow per share growth.
According to the investment bank, the company is likely to reduce capital expenditure further in 2025, targeting around $20bn, which could boost free cash flow by about $1bn compared with 2024.
Shell’s buyback programme, currently set at $14bn for 2025, is expected to remain in place.
Berenberg notes that while a lower capital expenditure approach may limit longer-term growth, it is offset by strong shareholder returns, including a 4.3% dividend yield and a 7% buyback yield, based on Shell’s estimated free cash flow yield of 13%.
It believes Shell will push for greater operational cost savings, having already targeted reductions of between $2bn and $3bn by the end of 2025. It expects the company to set even more ambitious targets to further lower its costs beyond that period.
Shell’s fourth-quarter results, released on January 30, showed adjusted earnings of $3.66bn, which were 11% below consensus expectations due to weaker performance in its Integrated Gas division.
However, operating cash flow of $10.8bn was ahead of estimates. Net debt increased to $38.8bn from $35.2bn in the previous quarter, driven by the inclusion of operating leases related to LNG Canada, leading to a rise in gearing to 17.7%.
Berenberg has slightly adjusted its earnings forecasts, lowering 2025 earnings per share expectations by 2% due to weaker gas earnings while increasing its 2026 estimate by 6%, reflecting stronger anticipated performance in downstream operations.
Despite weaker quarterly earnings, the bank maintains that Shell’s valuation remains attractive, with the stock trading at 9.4 times estimated 2025 earnings and 5.0 times enterprise value to debt-adjusted cash flow.
It believes the company’s focus on efficiency, cost control, and disciplined capital allocation will support sustained free cash flow and returns to shareholders.
Shell's shares were flat in afternoon trading at 2,683p.