LONDON (SHARECAST) - Shares in oil and gas titan Royal Dutch Shell have been rather subdued over the last year, prompting Investec to upgrade its recommendation for the stock from 'sell' to 'hold'.
"Shell has underperformed the market by ~9% over the past 12 months on concerns over higher costs eating into record cash generation," Investec said in a research note on Thursday.
The broker said that, while there were few new strategic messages in today's third-quarter statement, the next major event is the management day on November 14th in London with focus on global gas perspectives and the outlook for Asia Pacific.
The company reported a clean third-quarter net income of $6,559m, slightly below consensus estimates ($6,651m) and Investec's forecast ($6,672m).
Meanwhile, the broker said that the company has "loadsamoney" as it continues to generate substantial cash flows. "We expect the priority to be re-investment but the company could afford a more generous dividend if it choses to."
With Investec expecting cash flow from operations (CFFO) to be $41bn in 2013, it says that the company can push capital expenditure to over $31bn of which 80% will likely be allocated to exploration and production.
The broker has raised its target price for the shares from 1,875p to 1,936p after nudging its estimates higher; the next target is set at a sector average price-to-earnings multiple of eight.
Shares gained 0.82% to 2,142.5p in mid-morning trade.