HSBC upgrades Shell, BG to 'buy'

(ShareCast News) - HSBC upgraded its stance on Royal Dutch Shell and BG Group to 'buy' from 'hold' as it took a look at global integrated oil companies.As far as Shell is concerned, it said the fall in the shares in absolute terms brings them to levels which justify an upgrade.The bank said the proposed BG deal addresses one of its key concerns over the company, which is a lack of growth in volumes and cash flow, and management's determination to use the combination to drive a sharp improvement in business performance across the organisation is becoming clearer.HSBC said the stock currently offers a 7.5% prospective dividend yield and although it doesn't see as much organic free cash cover as for some, such as BP or Total, it reckons Shell has immense flexibility to sustain this payment.The bank cuts it price target to 1,900p from 2,050p as a result of updated estimates.In terms of BG Group, HSBC said: "Results are showing that after many years of disappointment, volume growth is finally kicking in and with its Q2 figures BG guided to the upper end of its current 650-690kboed range for 2015."The bank said that in the latest market selloff, BG's discount to Shell's implied offer has widened significantly, and is currently around 14%. "This reflects the impact of increased volatility on the cost of carry as much as any uncertainty over the deal going ahead and at these levels, we think BG's shares offer an attractive entry into the Shell/BG combination."HSBC cut its price target on BG to 1,170p from 1,230p.At 1457 BST, Shell shares were down 2.3% at 1,666.50p and BG shares were 1.4% lower at 980.50p.