1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ Cutting forecasts and target prices on lower Brent foreca
2、sts of USD60/b for 2020 and USD65/b long-term(from USD70/b)Breakevens are much more of a differentiating factor at lower prices Equinor,BP and Total stand out as sector-leading Downgrade ENI and RDS to Hold.Reiterate Buy on BP,Equinor,Repsol,Total;most upside potential in BP,Equinor With Brent price
3、s in the USD70/bs,almost all the major oils were in strongly positive free cash territory and their seemed little to differentiate the stocks.This isnt the case at lower prices,where things are more marginal.Lower free cash margins matter and stock selection becomes more important again.We lowered o
4、ur Brent forecasts to USD60/b for 2020 and USD65/b for 2021 vs USD70/b in a report published yesterday(Oil market outlook:Cutting price deck 2020 looks challenging).This has meant average cuts to our CFPS forecasts of 11%for 2020 and 6%for 2022.However,this still points to a strong outlook for the s
5、ector and we expect the stocks to re-rate over time,but given the less certain macro backdrop this re-rating could take longer than we had thought before.As a result,we have lowered our target prices by an average 9%.In this report we examine a downside case of USD55/b Brent plus gas prices,refining
6、 and chemicals margins staying weak in order to test the resilience of the companies.This is where differences in breakevens really show up,and the merits of the more defensive stocks become apparent.In particular,we think low breakevens at Equinor,BP and Total given them a critical advantage.Shells
7、 outlook is strong at USD65-70/b but a high free cash breakeven leaves it much less flexibility than key peer BP,which remains a top pick;we downgrade Shell from Buy to Hold and see better catalysts in BP;see our report:BP the better defensive play;RDS downgraded to Hold for more detail.ENIs above-a
8、verage breakeven is behind our downgrade to Hold.We reiterate Buy ratings on Equinor,Repsol and Total,and Hold ratings on Chevron and Exxon.The highest upside implied by our target prices is in Equinor(20%)and BP(18%).11 September 2019 Gordon Gray*Global Head of Oil and Gas Equity Research HSBC Bank
9、 plc +44 20 7991 6787 Kim Fustier*Analyst,Oil&Gas HSBC Bank plc +44 20 3359 2136 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Global integrated oils Equities Oil&Gas Global Integrated oils Stock summary table Current _ Targe
10、t Price _ _ Rating _ Upside/Div yield _ 2020e _ Company/Ticker Currency price New Old New Old Downside 2019e PE(x)EV/CF(x)FCF yield BP(BP/LN)GBp 507.0 600 645 Buy Buy 18%6.6%12.1 5.8 10.5%Chevron(CVX US)USD 117.6 120.0 129.0 Hold Hold 2%4.1%18.7 8.5 5.7%ExxonMobil(XOM US)USD 70.3 75.0 82.0 Hold Hold
11、 7%4.9%15.1 8.0 3.9%Shell A(RDSA LN)GBp 2,285 2,500 2,780 Hold Buy 9%6.7%11.5 6.1 8.2%Shell B(RDSB LN)GBp 2,279 2,500 2,780 Hold Buy 10%6.7%11.4 6.1 8.2%Total(FP FP)EUR 46.2 51.50 56.00 Buy Buy 11%5.8%11.0 5.8 9.2%ENI(ENI IM)EUR 13.87 14.60 17.00 Hold Buy 5%6.2%12.2 4.6 9.7%Repsol(REP SQ)EUR 13.78 1
12、5.10 16.80 Buy Buy 10%7.0%8.9 5.0 9.9%Equinor(EQNR NO)NOK 166.8 200.0 210.0 Buy Buy 20%5.7%11.3 4.3 11.3%Source:Refinitiv Datastream,HSBC estimates.Priced at close 5 September 2019 Low breakevens matter in a weaker macro backdrop Equities Oil&Gas 11 September 2019 2 In this report,we cut our estimat
13、es to reflect a reduction in our crude price forecasts,as detailed below.We are now forecasting a long-term Brent price of USD65/b(flat real from 2021)vs USD70/b.We continue to believe the sectors prospects for growth and free cash flow are strong,and we still see a sustained period of excess cash d
14、istribution to shareholders.However,we acknowledge the big increase in uncertainty regarding the macroeconomic backdrop in recent reports see Global integrated oils:Good value or value trap?,7 August 2019.For this reason we test the outlook for the companies under two scenarios:On our base case assu
15、mptions of USD60/b Brent in 2020 and USD65/b real thereafter On USD55/b flat real Brent,and also assuming other market conditions(natural gas prices,refining and petrochemicals margins)show no improvement from recent levels for the next 2-3 years.We think this represents a fairly severe downside sce
16、nario given how depressed natural gas prices,refining and petrochemicals margins have been so far in 2019.On our base case,the sector still looks reasonably attractive given the strength of shareholder distributions,underpinned by low free cash breakevens.Having said this,we recognise that the secto
17、r may take longer to re-rate than we previously thought.Following our rating changes we now have four Buys and four Holds(from six Buys and two Holds previously.With current oil prices much closer to company FCF breakevens,we believe differentiation between the stocks is once again becoming importan
18、t.Our highest TP upsides are at BP and Equinor(18%and 20%respectively).Cutting estimates,target prices on lower Brent price forecasts In a report published yesterday(Oil market outlook:Cutting price deck 2020 looks challenging)we lowered our crude price forecasts,as detailed in the table below.Our 2
19、020 and 2021 full year average Brent price forecasts have fallen from USD70/b for both years to USD60/b and USD65/b respectively.Demand concerns dominate,but market set to tighten in 2H19 Since OPEC enacted its supply cuts in November 2018 in response to sharply weaker crude prices,it has removed 2.
20、7mbd of supply from the market through a combination of voluntary cuts(mainly from Saudi Arabia and the UAE)and involuntary losses(Iran,Venezuela).The Low breakevens matter Cutting forecasts and target prices on lower Brent forecasts of USD60/b for 2020 and USD65/b long-term(from USD70/b)Breakevens
21、are much more of a differentiating factor at lower prices Equinor,BP and Total stand out as sector-leading Downgrade ENI and RDS from Buy to Hold.Reiterate Buy on BP,Equinor,Repsol and Total;most upside potential in BP and Equinor 3 Equities Oil&Gas 11 September 2019 supply cuts helped to support a
22、strong rebound in prices in 1Q19 but after reaching a peak of USD75/b in April,Brent has slumped to around USD60/b again.The scale of the OPEC cuts wasnt enough to prevent OECD stocks rising steadily through 2Q under the combined effect of strong US supply growth and a rapidly deteriorating demand b
23、ackdrop.Indeed,it looks like oil prices could have been much lower if OPEC supply curbs hadnt been so aggressive.Preliminary data suggests inventories are now(finally)falling,and we expect to see more evidence of this in the coming months which should lend some near-term support for prices.2020 coul
24、d be tough,with little room for higher OPEC output However,as we look to 2020,market fundamentals could well be even weaker than in 2019.Demand should get at least some boost from the onset of IMO 2020 regulations,but demand growth is set to be outpaced once again by the scale of non-OPEC growth,pri
25、ncipally from US tight oil.Supply/demand balances indicate a demand for OPEC crude in 2020 no higher than its current output put another way,OPEC will need to continue its restraint beyond the current March 2020 expiry of the agreement if the market is not to return to significant oversupply.So once
26、 again,the main swing factor for 2020 is likely to be OPEC strategy:We expect the OPEC+accord to be extended through the whole of 2020,and this is the assumption in our supply/demand model which still shows a modest global stock build for the year If the market continues to deteriorate we think ther
27、e is a good chance that core OPEC members push for a deeper cut at the December meeting,with the aim of eliminating what is still a sizeable global inventory surplus The wild card for oil markets would be any abandonment of the agreement,either from a failure to keep non-OPEC producers(principally R
28、ussia)on board,or from a deliberate return to the 2014-15 strategy of allowing prices to fall further in order to push out non-OPEC supply.We think the probability of this outcome is low partly because of the economic pressure already being felt by OPEC producers at these prices,but also because we
29、expect rapidly-slowing non-OPEC supply growth to give OPEC room to rebuild market share anyway post-2020.HSBC oil and gas price assumptions Annual average 2016 2017 2018 2019e 2020e 2021e Brent USD/b 45.1 54.8 71.6 63.8 60.0 65.0 Previous 66.6 70.0 70.0 Change (2.8)(10.0)(5.0)WTI USD/b 43.4 50.9 64.
30、8 56.8 55.0 62.0 Previous 59.1 65.0 67.0 Change (2.3)(10.0)(5.0)Nymex gas USD/mBtu 2.5 3.0 3.1 2.6 2.5 2.8 Previous 2.6 2.5 2.8 Change 0.0 0.0 0.0 UK spot gas USD/mBtu 4.7 5.8 7.9 4.9 5.6 6.1 Previous 4.9 5.8 6.8 Change (0.0)(0.2)(0.7)Source:Refinitiv Datastream,HSBC assumptions Equities Oil&Gas 11
31、September 2019 4 Main risks to our crude price assumptions Upside risks to our forecasts Downside risks to our forecasts US China trade truce Escalation in US-China trade wars More severe sanctions on Venezuela No-deal Brexit pulling Europe into a recession Successful Chinese stimulus package Russia
32、 pulls out of output cut agreement OPEC deepens cuts in December OPEC weakens or scraps its output cut agreement 2H19 stock draws catch market by surprise 2H19 stock draws do not show up in OECD&EIA weekly data Source:HSBC Brent and WTI crude prices,USD/b Brent crude:Bloomberg consensus for 2019 and
33、 2020,USD/b Source:Bloomberg Source:Bloomberg Cutting gas prices(again)In our previous sector report(see Global integrated oils:Good value or value trap?,7 August 2019),we reduced our assumptions on all macro drivers outside of the Brent benchmark price,including gas prices,refining and petrochemica
34、l margins.We argued that the headwinds in gas and downstream which became evident in 1H would persist through to 2020.With our lower crude price forecasts,we make further cuts to our gas price assumptions as follows.We reduce our oil-linked LNG price assumptions from USD10-9.5/mbtu in 2020-21 respec
35、tively to USD8.8/mbtu.The implied price“slope”to Brent(i.e.the ratio of gas prices to crude prices)is broadly unchanged vs our previous assumption at 13.5%long-term.We cut our 2020-22 European spot and Asian gas price assumptions by 7%on average,as lower oil-linked gas prices are likely to weigh dow
36、n on hub prices.For 2020,we have tempered our expectations of a gas price spike in 1Q as inventories in Europe are likely to be high at the start of next year.High storage levels could dampen usual winter seasonality as well as any upside from disruptions from the east(Russia-Ukraine transit and Nor
37、d Stream 2 delays).There are no changes to US Henry Hub price assumptions.405060708090Jan-18 Apr-18Jul-18Oct-18 Jan-19 Apr-19Jul-19BrentWTI55606570758085Mar-15Mar-16Mar-17Mar-18Mar-19Brent 2019EBrent 2020E 5 Equities Oil&Gas 11 September 2019 Cash flow estimates cut by 11%for 2020e,6%longer term We
38、are updating our estimates to reflect the changes to our oil(and oil-linked gas)price assumptions.On average,these changes result in reductions to our EPS estimates of 21%in 2020 and 11%in 2021.Cuts to our CFPS estimates average 11%for 2020 and 6%for 2021 and beyond.Our cash flow forecasts are on av
39、erage 4%below consensus for 2020 but 2%above for 2021.Cash flows are far more relevant than earnings in the oil major sector as earnings are heavily compressed by high depreciation and amortisation;as such we wouldnt read much into our well below-consensus EPS estimates.While our 2020 CFPS estimates
40、 are slightly below consensus,we believe consensus is still moving down as oil price estimates are revised down.For context,our 2020/21 Brent price assumptions of USD60/b and USD65/b are both USD5/b below the latest Dow Jones consensus.We are most below CFPS consensus in 2020-21 on Total,possibly as
41、 a result of our below-average gas price assumptions.Integrated oils:EPS estimate changes _ Current forecast _ _ Prev forecast _ _ Forecast change _ _ HSBC vs Cons._ 19e 20e 21e 19e 20e 21e 19e 20e 21e 19e 20e 21e BP(BP/LN)USD 0.47 0.51 0.64 0.50 0.62 0.70 (7%)(17%)(8%)(11%)(14%)(0%)Chevron(CVX US)U
42、SD 6.63 6.28 7.90 7.23 8.88 9.20 (8%)(29%)(14%)(5%)(24%)(2%)Exxon(XOM US)USD 2.92 4.66 6.17 3.21 5.75 6.82 (9%)(19%)(10%)(9%)(1%)29%Shell A(RDSA LN)USD 2.07 2.46 3.06 2.20 3.15 3.44 (6%)(22%)(11%)(15%)(17%)(3%)Total(FP FP)USD 4.23 4.64 5.38 4.54 5.61 5.98 (7%)(17%)(10%)(15%)(19%)(9%)ENI(ENI IM)EUR 0
43、.93 1.12 1.37 1.05 1.52 1.64 (11%)(26%)(16%)(16%)(17%)(6%)Repsol(REP SQ)EUR 1.18 1.55 1.88 1.25 1.81 2.03 (5%)(14%)(8%)(26%)(20%)(2%)Equinor(EQNR NO)USD 1.53 1.64 1.89 1.66 2.02 2.21 (8%)(19%)(14%)(7%)(15%)(10%)Supermajor ave (8%)(21%)(11%)(11%)(15%)3%European ave (7%)(19%)(11%)(15%)(17%)(5%)Average
44、 (8%)(21%)(11%)(13%)(16%)(0%)Source:Bloomberg consensus,HSBC estimates Integrated oils:CFPS estimate changes _ Current forecast _ _ Prev forecast _ _ Forecast change _ _ HSBC vs Cons._ 19e 20e 21e 19e 20e 21e 19e 20e 21e 19e 20e 21e BP(BP/LN)USD 1.30 1.46 1.60 1.35 1.62 1.70 (4%)(10%)(5%)(5%)(0%)7%C
45、hevron(CVX US)USD 15.30 15.60 17.67 15.94 18.33 19.31 (4%)(15%)(9%)1%(8%)(7%)Exxon(XOM US)USD 7.24 9.49 11.22 7.56 10.69 12.02 (4%)(11%)(7%)(4%)3%13%Shell A(RDSA LN)USD 5.24 6.04 6.85 5.49 6.83 7.34 (4%)(12%)(7%)(8%)(7%)(1%)Total(FP FP)USD 9.75 10.37 11.18 10.06 11.26 11.83 (3%)(8%)(5%)(9%)(13%)(10%
46、)ENI(ENI IM)USD 4.12 4.07 4.47 4.30 4.60 4.88 (4%)(12%)(8%)0%(2%)1%Repsol(REP SQ)USD 4.14 4.60 5.03 4.27 5.00 5.31 (3%)(8%)(5%)(4%)(5%)7%Equinor(EQNR NO)USD 4.45 5.42 6.00 4.69 6.06 6.29 (5%)(11%)(5%)(7%)(2%)5%Supermajor ave (4%)(11%)(7%)(5%)(5%)1%European ave (4%)(10%)(6%)(5%)(5%)2%Sector ave (4%)(
47、11%)(6%)(4%)(4%)2%Source:Bloomberg consensus,HSBC estimates Target prices cut by an average of 9%;ratings on ENI and RDS cut from Buy to Hold The tables below show our latest target prices and company ratings,along with a snapshot of key valuation metrics.On average,we have lowered our target prices
48、 on the stocks in our coverage by 9%.This reflects a combination of factors,which we discuss in more detail later in this report:Cutting EPS by 21%and CFPS by 11%in 2020 HSBC CFPS estimates 4%below consensus in 2020 Equities Oil&Gas 11 September 2019 6 The effect of our lower crude price assumptions
49、 on the company cash flows driving our target price calculations Higher WACC estimates as a result of updating our analysis of the stocks downside betas vs the market Updates to our target P/CF multiples relative to market,which in general point to a slower re-rating of the sector than we had previo
50、usly assumed due to the somewhat weaker free cash flow outlook.As a result of these changes,we are reducing our target prices by an average of 9%.Our updated target prices imply average upside of c10%.On our updated target prices the highest implied upside is at Buy-rated BP(18%)and Equinor(20%).We