Re-rating for Europe oil majors

Keep abreast of market moving events with CIO's weekly bulletin
Chief Investment Office09 Jun 2021
Photo credit: DBS

Europe oil majors are big laggards among global peers. We believe concerns over their dividend and green policies, which are the main reasons for their underperformance, should start to ease. With rising oil prices and Energy being a major sector weight in Europe, global investors may start to look at this Value sector positively, as they turn increasingly positive in Europe, leading to its re-rating.

Strong 1Q results. 1Q21 results for major companies in the sector were very strong and showed signs of sustainable improvement in their operations. Notably, Gas and Marketing divisions showed strong recovery and as global economies start to reopen fully, we expect the recovery to continue. For instance, motor gasoline demand in the US is about 90% back to pre-crisis levels. Meanwhile, these companies have also demonstrated confidence to resume their dividends and share buyback programmes as cashflow generation was strong. Ongoing upstream projects delivery, cost restructuring such as deleveraging, and improving efficiency to a lower breakeven cost of around USD40.00-45.00 should see the companies on a sustainable recovery. Share buybacks, combined with dividends, could lead to total cash returns for shareholders of around 8-10% yield in the coming years.

Green vision. These European big oil companies have also reiterated their strategic visions to achieve net zero greenhouse gas emissions target by 2050 – a global target by all regions including China, the US, and Europe. However, it is a legally binding target in most European countries such as Sweden, the UK, Denmark, and France, and hence the urgency for the European oil majors to stay consistent on this path. The main focus is on reducing the carbon intensity of their products and to build an integrated portfolio of low carbon technologies of renewables, electrification, and biofuels mix. We believe environmental, social, and governance investors will still be attracted to the sector.

Keep abreast of market moving events with CIO's weekly bulletin. Find out more about what we think on credit, rates, FX, and thematics. Download the PDF to get the full report.


This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) (“DBS”) which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the “MAS”).