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(Sharecast News) - Berenberg upgrade its stance on a host of oil and gas stocks on Friday - including BP - as it argued that share prices across the oil sector remain cheap, with further consensus upgrades to come as higher commodity prices are reflected in estimates.
The bank said capital discipline has been maintained, driving strong free cash flow generation. At its commodity price assumptions, it expects the integrateds to deliver more than 25% FCF over 2022/23E, with 13% upside to consensus 2022E earnings per share on a forward price-to-earnings of 7.9x.
"Commodity prices are back above 2019 levels and the companies are further along in their energy transition plans; earnings and FCF generation look set to be materially better; and on average, the group is still trading 8% below end-2019 levels."
Berenberg's preferred way to play this strength is through Shell and Equinor, both of which are rated 'buy'.
The bank lifted BP to 'buy' from 'hold' and upped the price target to 425p from 310p. Harbour Energy got the same rating upgrade, while the price target was boosted from 380p to 425p.
Berenberg said BP's stock has lagged peers this year, but is well positioned to benefit from higher commodity prices, and should generate strong free cash flow in coming quarters, enabling both attractive shareholder returns and rising investments into lower carbon businesses.
The bank has estimated a 16% FCF yield for 2022 at its new estimates, and expects total shareholder returns of more than 11% with a $6bn buyback at its $75/bbl Brent assumption.
Berenberg said the valuation remains "highly attractive", with the stock trading on 6.8x forward price-to-earnings
As far as Harbour Energy is concerned, the bank said it was updating its model to incorporate its revised price deck.
"The result is a significant increase in our near-term estimates, with EBITDA up by 11% and 31% in FY21/FY22 respectively.
"Our forecasts also show significant free cash flow which could result in the company having a net cash balance sheet as early as 2024."
Tullow Oil was also bumped up to 'buy' from 'hold', with the price target increased to 65p from 55p. Berenberg said its updated forecasts show a significant increase in near-term estimates, with EBITDA up by 17% and 30% in FY21/FY22 respectively, and increased FCF which results in significantly quicker net debt reduction - 25% over 2021-23 versus a 6% in its previous model.
Berenberg cut Jadestone Energy to 'hold' from 'buy' but upped the price target to 100p from 90p. The bank said progress on delivery of the Maari acquisition in New Zealand and the Nam Du gas development in Vietnam has been slower than expected. Upside to the current share price is reliant on the company securing further accretive acquisitions, it said.
6 Sep 2023 15:46
UK earnings, trading statements calendar - next 7 days
| Thursday 7 September | |
| Angle PLC | Half Year Results |
| Beazley PLC | Half Year Results |
| Cairn Homes PLC | Half Year Results |
| Currys PLC | Trading Statement |
| Direct Line Insurance Group PLC | Half Year Results |
| Energean PLC | Half Year Results |
| Funding Circle Holdings PLC | Half Year Results |
| Genus PLC | Full Year Results |
| Hilton Food Group PLC | Half Year Results |
| Inspecs Group PLC | Half Year Results |
| International Public Partnerships Ltd | Half Year Results |
| Lords Group Trading PLC | Half Year Results |
| Melrose Industries PLC | Half Year Results |
| Mpac Group PLC | Half Year Results |
| Playtech PLC | Half Year Results |
| Polarean Imaging PLC | Half Year Results |
| Safestore Holdings PLC | Trading Statement |
| Synthomer PLC | Half Year Results |
| WAG Payment Solutions PLC | Half Year Results |
| Friday 8 September | |
| Berkeley Group Holdings PLC | Trading Statement |
| Byotrol PLC | Full Year Results |
| Computacenter PLC | Half Year Results |
| EJF Investments Ltd | Half Year Results |
| Petershill Partners PLC | Half Year Results |
| Monday 11 September | |
| Engage XR Holdings PLC | Half Year Results |
| Inspired PLC | Half Year Results |
| MP Evans Group PLC | Half Year Results |
| Vistry Group PLC | Half Year Results |
| Tuesday 12 September | |
| Associated British Foods PLC | Trading Statement |
| Cornerstone FS PLC | Half Year Results |
| Creo Medical Group PLC | Half Year Results |
| Digital 9 Infrastructure PLC | Half Year Results |
| Dowlais Group PLC | Half Year Results |
| Eleco PLC | Half Year Results |
| Equals Group PLC | Half Year Results |
| Feedback PLC | Full Year Results |
| Fevertree Drinks PLC | Half Year Results |
| Gym Group PLC | Half Year Results |
| Harworth Group PLC | Half Year Results |
| hVIVO PLC | Half Year Results |
| IQE PLC | Half Year Results |
| Itaconix PLC | Half Year Results |
| JTC PLC | Half Year Results |
| Keywords Studios PLC | Half Year Results |
| Mattioli Woods PLC | Full Year Results |
| Ocean Harvest Technology Group PLC | Half Year Results |
| Petra Diamonds Ltd | Full Year Results |
| Property Franchise Group PLC | Half Year Results |
| Regional REIT Ltd | Half Year Results |
| Smart Metering Systems PLC | Half Year Results |
| Wednesday 13 September | |
| abrdn Smaller Companies Income Trust PLC | Half Year Results |
| Argentex Group PLC | Half Year Results |
| Brave Bison Group PLC | Half Year Results |
| Burford Capital Ltd | Half Year Results |
| CAB Payments Holdings PLC | Half Year Results |
| Central Asia Metals PLC | Half Year Results |
| Made Tech Group PLC | Full Year Results |
| On The Beach Group PLC | Trading Statement |
| Pan African Resources PLC | Full Year Results |
| Pharos Energy PLC | Half Year Results |
| Ricardo PLC | Full Year Results |
| Star Energy Group PLC | Half Year Results |
| Tullow Oil PLC | Half Year Results |
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