Canaccord sees "early signs of underlying potential" at Shell

Canaccord Genuity recommends investors to 'buy' shares of Royal Dutch Shell after the Anglo-Dutch oil major showed "early signs of underlying potential" with its second-quarter results.Earnings, on a current cost of supplies (CCS) basis, surged to $5.1bn in the three months to 30 June, up from $2.4bn the year before, helped by higher liquids production volumes and prices. A strengthening Australian dollar on a deferred tax liability and higher contributions from manufacturing were also behind the better bottom line, Shell said.Excluding so-called "identified items", second-quarter earnings totalled $6.1bn, 33% up from $4.6bn the year before, well ahead of Canaccord's $5.8bn forecast and the consensus estimate of $5.46bn.Analysts Richard Griffith and Alex Brooks said: "RDS has promised enhanced financial performance and these results give an early stage indication of the group's potential when all aspects of the operations are performing. "If this progress is sustained the group expects to return $30bn in dividends and buybacks over 2014-15."The analysts have left their 2,800p target price for the stock unchanged.They pointed out that the shares trade at just 10.9 and 9.7 times 2014 and 2015 earnings estimates, respectively. This is a discount to the wider sector multiples of 12.8 and 10.6, respectively.The stock was up 3% at 2,454.5p by 10:56.BC