HSBC analyst Kim Fustier downgraded the rating on Shell (UK) to a Hold today, setting a price target of p2,950.00.
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Kim Fustier has given his Hold rating due to a combination of factors impacting Shell’s financial outlook. One significant concern is the anticipated rise in Shell’s net debt, which could increase by nearly 50% in the coming years. This is primarily because Shell’s distributions are not expected to be organically funded until the end of the decade, leading to potential market concerns about the sustainability of its distributions.
Additionally, the normalization of trading conditions in the LNG and oil sectors is expected to affect Shell’s profits more than its peers, given its higher reliance on trading. This reliance makes Shell more vulnerable to fluctuations in trading profits, which are projected to decline. Furthermore, Shell’s current valuation premium over its peer Total is deemed unjustified, as both companies face similar funding gaps and debt trajectories. These factors contribute to a cautious outlook, justifying the Hold rating.
Fustier covers the Energy sector, focusing on stocks such as Shell (UK), Equinor ASA, and Chevron. According to TipRanks, Fustier has an average return of 4.3% and a 66.18% success rate on recommended stocks.
In another report released on August 1, Citi also maintained a Hold rating on the stock with a £26.50 price target.