RBC Capital Markets has a dim view of Shell PLC ahead of Thursday's fourth-quarter results, having recently downgraded the big-cap oiler to ‘Sector Perform’, citing concerns over weakening portfolio depth and softer operational performance.
Previewing the upcoming numbers the Canadian bank noted that Shell’s January trading update flagged challenges in its upstream operations and oil trading division, offset only partially by improved refining margins.
In its recent downgrade, which was underlined with today's preview, RBC also lowered its 12-month price target to 3,200p, down from 3,600p and revised its 4Q net income estimate to $3.3 billion, slightly below consensus at $3.5 billion, with expectations of weaker-than-expected cash flow generally, and a loss in the Chemicals & Products division.
RBC noted that the company's working capital swing could elevate the cash flow payout ratio above its 40-50% target to around 57% on a rolling basis.
Looking ahead, RBC sees investor narrative shifting from share buybacks to portfolio resilience. Shell’s reserve life is expected to decline further following the de-booking of its Canadian oil sands asset, and, the broker noted that speculation also continues around potential divestments in LNG Canada and its Pennsylvania chemical assets, possibly paving the way for future acquisitions.