March 29, 2018 / 12:27 PM / 8 months ago

BUZZ-MS, Citi bullish on big oil cos, but differ on Shell

** Citigroup says integrated oil companies (IOCs) should not be judged only on their improving shareholder returns, but also by their “deconstructed synthetics”

** Says the intrinsic value of IOC upstream businesses is currently at 5.3x 2020E EV/debt-adjusted cash flow vs traditional U.S. E&P companies trading at 5.7x

** Upgrades BP and Repsol to “buy”, joining Chevron, Exxon and ConocoPhillips

** Cuts Statoil to “sell” to join Shell, saying ratings reflect concerns over portfolio-shortfall that are not factored into valuation

** Morgan Stanley’s says its analysis shows the ‘Big 5’ could generate ~$17 bln FCF in Q1, highest level in seven years

** Yet, MS notes, the sector has not outperformed as investor sentiment stays low and European majors seen as a “show-me” story, as far as FCF growth is concerned, after a weak Q4

** MS says weak cash generation in Q4, especially vs. Q2 and Q3, resulted in sector’s underperformance, particularly Shell’s; but expects “the reverse will happen” post Q1 2018

** MS rates Shell and Total “overweight” are both are among its top picks

** But, Citi also cautions that while rising FCF may translate into higher shareholder returns, investors should note the industry is probably operating under sustainably low capex (Reporting by Jasmine I S in Bengaluru)

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