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Royal Dutch Shell's earnings forecast upgraded by UBS to reflect buyback plans

Cash flow from operations is likely to improve further as the year wears on while free cash flow will benefit from divestment completions, UBS sadi

Royal Dutch Shell PLC -

UBS is increasing its earnings forecast for Royal Dutch Shell PLC (LON:RDSB) after the oil giant’s second-quarter update earlier this week.

The company signalled it will be distributing 20-30% of cash flow from operations (CFFO), which most analysts have interpreted as a return of share buybacks rather than any significant increase in the dividend.

“We expect the initial step up in distributions to be done via share buybacks, especially given the current share price, but see Shell as retaining optionality as it looks at the sustainability and resilience of CFFO, and as debt is further lowered, to revisit dividend payout levels also. A critical element of the investment case in any oil company, given the challenges of energy transition and ESG [environmental and social governance] effects on institutional investors, is a strong financial case and an attractive payout forms an important component part. This earlier than expected change enhances the investment case for Shell, we believe,” UBS said.

The Swiss bank has upped its earnings per share estimates for the current year by 4% and by an average of 0.5% for 2022-25.

UBS rates the shares a “buy” with a price target of 1,860p.

Shell shares currently trade at 1,419.6p, down 0.4% on the day.

Quick facts: Royal Dutch Shell PLC


Price: 1528.4 GBX

Market Cap: £118.75 billion

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