BofA reinstates Shell at Neutral, sees multiple challenges ahead

Royal Dutch Shell (RDS.A, RDS.B) is reinstated at BofA Merrill with a Neutral rating and a $73.68 price target, but the firm prefers Buy-rated BP.

The firm sees Shell as one of the more challenged global energy supermajors: It believes the company falls short on visibility regarding the required recovery in operating cash flow, and its forecasts suggest free cash flow is not sufficient to cover dividends for the foreseeable future.

The base case thus assumes zero dividend growth beyond 2014, increasing gearing towards 20% instead, in contrast to our estimate for BP's decreasing gearing and 5%-plus CAGR.

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