The expected recovery of global oil demand for transportation and more positive earnings this year, compared to the nightmare of 2020, are setting the stage for a rally in the stocks of the biggest European oil companies, Goldman Sachs says.
Shares in Europe’s Big Oil could jump by between 20 percent and 50 percent over the next year, thanks to recovering demand and the potential launch of share repurchases, Goldman Sachs analysts led by Michele Della Vigna said in a note as carried by Barron’s.
“A transportation recovery can reignite momentum for the underlying commodity and Big Oils equities, which we expect could be one of the key recovery/value trades in the coming months,” Goldman Sachs said.
Another catalyst for the potential rally, Goldman says, is the expectation that oil companies will likely report solid earnings for the first quarter of this year, after the disastrous results for the fourth quarter and full-year 2020, which were hit by the collapse in oil prices and the simultaneous crash in demand that slammed both the upstream and downstream businesses.
According to the investment bank, the price environment this quarter is much more favorable for oil firms than in Q4, when oil prices only rallied at the end of the quarter.
BP has the highest upside potential, Goldman Sachs says, thanks to the UK-based supermajor’s exposure to transportation oil demand, the net-zero pledge, and the possibility of share buybacks. BP’s ADRs listed in New York have the potential to jump by as much as 60 percent over the next 12 months, while the London-listed shares have a 54-percent upside potential.
Shell’s stock has an upside potential of 30 percent, France’s Total – 26 percent, Repsol of Spain could rise by 18 percent, and Italy’s Eni by 15 percent, Goldman Sachs says, as quoted by Barron’s. Goldman noted as potential catalysts Shell’s net-zero strategy and possible increase of dividends, as well as Total’s strong cash flow and balance sheet.