UK shares: Shell upgrade, ITV downgrade

Shell gets a lift from Iran conflict

Shell raised its guidance for second-quarter integrated gas production, although output is set to fall from the first three months of the year due to the US-Iran conflict.

The oil major also forecast trading and optimisation at its integrated gas segment to be "significantly higher" in Q2 than in the Jan-Mar quarter. Chemicals and products trading – which includes the oil trading division – are seen in line with the previous quarter’s robust performance.

Shell guided for production of 610-650,000 barrels of oil equivalent per day (boed), down around 30% from Q1, reflecting the impact of the Middle East conflict on Qatari volumes. It had previously guided 580-640,000 boed. Production at Shell’s major Pearl facility in Qatar was halted in March after an attack on the Ras Laffan industrial city, with repairs set to take up to a year.

Shell also guided higher indicative refining margins of about $20 per barrel, up from $17 in Q1, and chemicals margins of about $240 per tonne in the second quarter, a considerable increase from the $139 in Q1. However, management caution that realised refining margins will be lower than the calculated indicative margins due to market dislocations.

Shell also said it has agreed to sell its South African fuel supply business to UAE’s state energy company, Adnoc Distribution. The $1bn deal covers 580 service stations and other operations.

Shell shares rose about 3% to 3,000p, arresting some of the downwards trajectory since they hit a multi-year peak at the end of March as crude prices peaked. 

Can ITV rerate?

Yesterday ITV announced it will sell its broadcasting arm to Sky for £1.6bn, in a deal that marks the end of an era for the UK TV giant. Sky, which is wholly owned by US company Comcast, will initially pay £1.2bn for ITV’s media and entertainment business, which includes the free-to-air TV channels and ITVX streaming platform. Ad revenues have been in decline for years – against the streamers ITV has been fighting a tough rearguard but the sale was kind of inevitable.

The deal will face months of regulatory scrutiny. But there has barely been a whimper from the politicians about the sale, which will see the end of 70 years of ITV as an independent broadcaster. ITV will focus its efforts on the Studios business, where it makes content. 

The Q1 trading update made the point – M&E revenues down 2%, while Studios revenues rose 4%, driven by strong external revenue growth +8%, primarily reflecting the phasing of deliveries to global streaming platforms, including Skyscraper Live for Netflix, Rivals S2 for Disney+, and Love Island US: Beyond the Villa S2 for Peacock.

Following the announcement, JP Morgan downgraded their view on ITV stock from “overweight” to “neutral”, noting that the sale of the M&E business is a “good deal for Sky”, and cut the price target from 104p to 85p, with shares down around 7% on Tuesday to 76p. In time ITV shares could rerate with the focus on the crown jewel Studio business.