Goldman Sachs is taking a somewhat strong stance on London’s oil majors, with both BP plc (LON:BP. and Royal Dutch Shell plc (LON:RDSB) in the list of its ‘top picks’ in the sector.
The US bank sees both as ‘buys’ and more generally, highlighted that macroeconomic headwinds won’t derail oil and gas business from its cash flow sweet-spot –albeit, across the sector, it also noted the potential for negative earnings revisions.
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BP is on the cusp of delivering one of the industry’s strongest pipelines of new oil & gas projects, according to Goldman, which described the company as being “ideally positioned”.
At the same time, Goldman said Shell “offers the strongest cash returns to shareholders”.
“We view the EU Big Oils sector as attractive both from a valuation and return point of view; EU Big Oils currently trade at c.20% discount to the group’s 20y historical average while displaying the most attractive FCF yield in decades,” Goldman said in a note.
“This should fuel not only attractive dividend yields but also fund additional buyback programs in our view, which for some has already started in 2018.”