“The integration with BG is complete and the combined group provides a competitive base from which it should be able to reset and simplify the business,” Barclays analyst Lydia Rainforth said.
“The 2016 annual report provided some positive encouragement too with unit opex down 20% and upstream productivity levels now back to 2010 levels.”
At the same time, however, the analyst also points out that Shell lost money in its upstream operations for the second consecutive year, and production costs are still materially higher than when Brent last averaged in the US$50s (back in 2005).
Nonetheless, Rainforth reckons at the current price of £22.21 the company’s shares are undervalue and says that 2017 will be a ‘year of delivery’.
“Overall with significant progress on divestments already made it appears that Shell has reached the critical path of seeing gearing fall,” he said.
“This should increase market conviction that the dividend is sustainable, in which case a share price that implies a yield of nearly 7% appears to us meaningfully undervalued.”
Barclays has an ‘overweight’ rating for Shell, with a £27.50 price target.