RBC Capital Markets has downgraded Shell PLC (LSE:SHEL, NYSE:SHEL), citing growing concerns over portfolio longevity, gas exposure and the outlook for LNG trading margins.
The bank said Shell has delivered well on its strategy since the 2023 capital markets day, with management focusing on capital discipline and shareholder returns, while de-emphasising renewables.
Buybacks have helped shrink the share count by more than 25% since the pandemic, driving earnings per share momentum.
However, RBC noted that Shell’s valuation multiple has remained stagnant despite this capital return strategy, raising questions about the company’s future ability to pursue acquisitions without leaning more heavily on equity.
“We think this creates a challenge for Shell’s M&A ambitions,” the note said, with analysts cutting to a 'sector perform' rating from 'outperform' previously.
Shell has framed its strategy around free cash flow per share growth and LNG-led expansion, but RBC warned the macro landscape has shifted.
With investors placing more weight on long-term growth and Shell’s balance sheet capacity tightening, its discount to peers may persist.
“We see headwinds across international gas and trading, both of which Shell is exposed to,” the analysts wrote, also highlighting pressure in Shell’s chemicals restructuring.
RBC lowered its price target from 3,300p to 3,200p, reflecting a more cautious view of the shares, which closed last week at just under 2,690p.