JPMorgan bet on Europe's oil and gas majors over Gulf risks

JPMorgan Chase advised its clients to buy shares of Shell, TotalEnergies and other European oil and gas giants. According to the assessment of the largest US investment bank, securities of majors in Europe are relatively cheap, and further price growth may provide shareholders with attractive returns.

European oil and gas giants, whose shares have recently moved in line with oil prices, are offering "effective rather than outright inflated" valuations at a time when geopolitics will determine their short-term dynamics, Bloomberg cites a note by a team of JPMorgan analysts led by Matthew Lofting. If Brent crude reaches $100 a barrel, the FCF yield (which shows how much real cash flow the issuer generates for shareholders) of these companies will approach 15%, JPMorgan estimates.

The investment bank reaffirmed its "above market" (Overweight) recommendation for shares of British Shell and Portuguese Galp Energia, as well as upgraded to "above market" ratings of Italian Eni and French TotalEnergies, Bloomberg reports. According to the agency, JPMorgan's new target prices suggest a potential upside of 17% for Shell shares, 15% for Galp, 12% for Eni and 11% for TotalEnergies relative to closing prices last Friday, March 27, with dividends in the range of 4-6% annually.

According to FactSet, analysts' opinions on European oil and gas majors are divided: while Shell and Galp Energia have a consensus rating of "above the market" (Overweight, corresponding to a recommendation to buy), with regard to Eni and TotalEnergies shares, experts are on average more cautious, advising not to sell, but not to buy them (Hold).

The U.S. war with Iran, which began over the weekend, has led to restrictions on traffic through the Strait of Hormuz, the only sea outlet from the Persian Gulf oil region to the open ocean through which about a fifth of the world's seaborne trade in oil and liquefied natural gas (LNG) passes.

On March 2, Monday, the European energy subindex STOXX 600 jumped by 2%. In the leaders of growth were the shares of Galp, Norwegian Equinor and Var Energi, as well as Spanish Repsol, adding from 4% to 6.2%. In the morning of March 3, quotations of Shell in London were growing by 1.9%, but then went into negative by 1.2%, Eni in Milan losing 1.57%, Total in Paris falling by 1.27%, Galp in Lisbon after taking off during the session by 7.3% decline by 0.18%.

Oil futures rose 6% on March 2 and added another more than 3% on March 3. LNG contracts for Europe soared 50% after Iranian drones attacked the facilities of QatarEnergy, owner of the world's largest gas export terminal.

This article was AI-translated and verified by a human editor