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RDS' Under-the-Radar Progress

ALEJANDRO DEMICHELIS, BofA Merrill Lynch (07/05/2010)
"We continue to believe that Shell offers the most attractive combination of long-term growth and valuation support amongst Euro Oil majors—indeed, Shell is the only buy-rated major in our coverage. BP's problems in GoM continue to capture attention, allowing Shell to make 'under the radar' progress on its restructuring—particularly in downstream—and securing projects (e.g., Iraq gas deal). In addition, the situation appears to be creating new LT opportunities for Shell, particularly with national oil companies. A case in point of these opportunities is the reported possibility that Shell may enter the high-profile Shah gas project in the UAE or the new Ras Laffan cracker project in Qatar.

Reflecting the heavier than previously anticipated maintenance in 2Q, we are reducing our EPS by 2% in 2010E and 1% in 2011–12E. Our numbers put Shell on 7.5x 2010E earnings in line with a sector average of 7.8x. We believe that this valuation is compelling given Shell's long-term opportunity set."

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