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JPMorgan Reviews European Integrated Oil Names

JPMorgan Reviews European Integrated Oil Names; Bullish On BP, Shell RDS-ARDS-B And Statoil STO

Oil and energy analysts at JPMorgan are working under the assumption that the price of oil will be "capped in a lower but firmer" range of $40 to $60 a barrel, and this presents certain challenges for European integrated names.

"To us, the burden of proof lies in the positive trending of cashflow growth, FCF dividend coverage and gearing. Leading indicators to watch include quarterly capex/opex intensity ($/boe), CFFO and cash break-evens," the analysts wrote.

The analysts added that EU oil stocks are trading on a 13.5x 2018E P/E, which is "inexpensive" relative to the market. Nevertheless, there are some winners and losers in the space.

The analyst note has come at a bit of an inconvenient time, as European stocks closed lower on Wednesday, while the price of oil also tumbled after U.S. crude oil stockpiles rose by the largest amount on record dating back to 1982.

Winners And Losers

BP plc (ADR) BP 0.29%, Royal Dutch Shell plc (ADR) STO 0.81% are expected to outperform their peers by offering: 1) the greatest rate of change in cost reduction through technology and innovation, 2) upstream portfolios with an attractive risk to reward profile and 3) sufficient liquidity to invest in future growth.

Two of the analysts' top listed names, BP and Royal Dutch released their earnings report on Tuesday.

On the other hand, the analysts are Underweight on Eni SpA (ADR) E 2.16%, Repsol Oil & Gas Canada Inc (USA) NYSETLM and OMV AG given their asset bases, which offer an inferior risk to reward profile and limited differentiation in cost reductions.

Nov 2016Societe GeneraleDowngradesBuyHold
Jul 2016JefferiesMaintainsHold
Jun 2016Morgan StanleyUpgradesEqual-WeightOverweight

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