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Statoil Receives A Downgrade From Morgan Stanley On Weak Outlook

Shares of Statoil ASA (ADR) STO have gained 6 percent since September 1. The company benefited from capex cuts and cost efficiencies as well as several key field startups. Statoil’s FCF outlook now appears weak versus peers, and does not justify the stock’s premium valuation, Morgan Stanley’s Haythem Rashed said in a report.

Outlook A Concern

Analyst Rashed downgraded the rating on Statoil from Equal-weight to Underweight, while reducing the price target from NKr144 to NKr123. He elaborated that majority of the capex cuts are now behind the company, and the start-up pipeline until 2H17-2018 appears thin. This translates to Statoil’s weak FCF outlook versus peers.

Statoil is expected to add $1.1 billion of FCF from oil & gas production between 2016-2019. This equates to 42 percent of the company’s dividend. “This is the weakest amongst the developed market majors which should add on average ~75% of their dividends in CFFO over the same period,” Rashed pointed out.

The analyst added that the substantial decline of Statoil's existing portfolio and backend loaded start-ups result in the sluggish outlook. He noted, “Historically, majors with more limited near-term start-ups have tended to underperform peers.”

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DateFirmActionFromTo
Sep 2016Morgan StanleyDowngradesEqual-weightUnderweight
Sep 2016HSBCUpgradesHoldBuy
Jul 2016DNB MarketsUpgradesHoldBuy

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