Royal Dutch Shell Upgraded; Deutsche Bank Likes Dividend, BG Transaction

In a report published Wednesday, Deutsch Bank analyst Lucas Herrmann upgraded the rating on

(NYSE:

) to Buy, while maintaining the price target at 2,425p. The analyst believes that the company's dividend is sustainable and that the

transaction is likely to proceed. "A torrid start to 2015 has seen Shell underperform its peers by c15% and its sector yield relative move to levels not seen since the 2004 reserves debacle," Hermann said, while adding, "At a time when the commodity outlook is uncertain, Shell's response to the macro backcloth has lacked caution and its view of the future appeared overoptimistic." Contrary to market perception, the analyst believes that imminent project startups could lead to an increase in cash flow to $17 billion by 2018, from $12 in 2014. This should offer strong support to the dividend. The analyst also expects "durable cash flow growth" from LNG for the combined Shell-BG entity. In addition, the combined Shell/BG trading portfolio should offer limited spot exposure in the near term, although with meaningful scope for optimization of logistics. "This is to say nothing of the compelling strategic logic of a BG/Shell LNG combination at a time of structural market change," Hermann added.