Broker tips: Royal Dutch Shell, Lloyds

ShoreCap stuck to its previous 'buy' recommendation for Lloyds' shares, despite the lender having fallen short of the broker's estimates for its first-quarter net interest income.

On the flip side, non-interest income, costs and impairments had all come in better-than-expected, analyst Gary Greenwood said in a research note sent to clients.

The above, together with Lloyd's unchanged guidance for the full-year led Greenwood to stay put on his own estimates.

Nevertheless, the Prudential Regulatory Authority's decision to reduce the regulatory capital requirement (core Tier 1) asked of Lloyds from 14.0% of assets to 13.5%, meant the lender now had more headroom for capital distributions, Greenwood said.

Roughly another £1.0bn, the analyst estimated, leading him to raise his forecast for Lloyd's share buybacks in 2020 from £1.5bn to £2.5bn.

Lloyds was guiding towards 170-200 basis points of capital generation over 2019, equating to approximately £3.5bn-4.1bn, of which £2.4bn would be consumed by dividends.

With the additional £1.0bn worth of funds available, the broker kept his estimate of the shares' fair value at 80.0p.

Analysts at Berenberg bumped up their target price for shares of Royal Dutch Shell from 3,000p to 3,100p, pointing out to clients the oil major's upwardly revised guidance for payouts and telling them that shares could recover from their recent underperformance if "momentum can be maintained".

They also noted the outfit's "solid" cash flow in a "challenging" quarter in terms of the macroeconomic backdrop, even if gearing did tick higher.

Berenberg also noted the strength seen in Shell's integrated gas unit bode well for the rest of the year, notwithstanding weak spot LNG prices in the first quarter.

Management had also upped the pace of share buybacks, from $2.5bn per quarter to $2.75bn "demonstrating the commitment to meeting the target of USD25bn in buybacks over the 2018-20 period."

And now, the German broker said: "with gearing under control and strong FCF generation, investors are looking to the investor day in June for an update on the shareholder returns beyond 2020."

The exact date of the Investor Day had yet to be announced and Shell deferred any comment regarding the potential timing on the day of its results.

On the back of lower depreciation and amortisation together with higher earnings assumptions, mainly for Integrated Gas and Refining, the broker marked up its estimates for Shell's earnings per share in 2019 and 2020 by 10% and 4%.

"Following recent underperformance, this strong set of results may lead investors to revisit the story over the coming months, with interest focusing around the investor day scheduled for June."

Berenberg's recommendation for Shell's shares was kept at 'buy'.