Morgan Stanley has cut its stance on oil giant Royal Dutch Shell PLC (LON:RDSA) to ‘underweight’ from ‘equal-weight’ ahead of the FTSE 100-listed firm’s fourth-quarter trading update, due next week on 31 January.
The US investment bank noted that Shell’s planned share buybacks, dividends and debt reduction would require $66bln in cash to the end of 2020 and do not leave much room for the group’s capital expenditure (capex) to increase.
The Morgan Stanley analysts pointed out that the Anglo-Dutch firm’s capex-to-dividend ratio is already unusually low, being by far the lowest in the sector and at a 20-year low in the company’s history.
They pointed out that the risk that Shell is either overdistributing or under-investing is higher than for its peers.
They also noted that the oil giant’s reserve life is falling much faster than that of its peers.
All of this led the bank to downgrade its rating for Shell, helping drag the blue-chip shares 2% lower to 2,324p.