Despite trading mostly in negative territory during the session, Repsol managed to close Wednesday with gains of 0.93%. This came even after JP Morgan reduced its target price for the company from 14 euros to 13 euros, maintaining its ‘underweight’ advice. The new target price is slightly higher than Repsol’s current trading level at €12.75.
JP Morgan’s decision was part of a broader report on the European oil and gas sector, where the bank maintains a ‘neutral’ view on energy equities due to lingering macroeconomic and microeconomic risks that have yet to reach their lowest point.
Despite the cautious outlook, JP Morgan acknowledges some positive developments in the sector. From a macro perspective, they highlight a sense of coherence and unity within OPEC, believing that recent announced cuts aim to control downside price volatility rather than indicating weak demand.
On the micro side, JP Morgan notes that the gap between its EPS estimate and the consensus has narrowed compared to earlier this year, indicating some encouraging signs for the companies in the sector.
Looking ahead, JP Morgan presents tactical ideas for the second quarter, favoring pairs that incorporate divergences in operating performance. Their top recommendation is a long position in Eni, which they rate as ‘neutral,’ emphasizing strong upstream/GGP execution, against an ‘underweight’ position in Equinor. The latter is affected by negative exchange rate acceleration and downside risks to total operating profitability in 2024. Eni is placed on “positive catalytic watch” until July 28, and Equinor is on “negative catalytic watch” until July 26.
JP Morgan maintains a ‘structural overweight’ stance on Shell after its recent performance and, with a cautious approach to mid-cap stocks, suggests an Iberian pairing of Galp, rated ‘neutral,’ versus Repsol, rated ‘underweight.’