September 8, 2016 [OPIS] - Large cap oil companies in both Europe and the U.S. continue to present material value to investors, but there is a significant value disconnect between the U.S. and Europe, according to a report by Barclays Capital.
Super oil majors in the U.S. are outperforming their European peers by 9% over the last 12 months and are now trading at an average 35% premium to Europe on 2017 EV/EBIDA, the bank said.
Barclays expects the valuation discounts for its key Overweight stocks, including BP, ConocoPhillips, Repsol and Total, to close over the coming year. An Overweight rating represents a bank’s expectations of the stock to outperform its industry.
“In what remains a challenging period for the oil & gas industry, competitive performance is a crucial determinant of whether a company adds or destroys value,” the bank said.
The bank reiterates its Overweight ratings on BP, ConocoPhillips, Repsol, Royal Dutch Shell and Total.
Its Overweight stocks all stand out as offering a significant valuation discount to operational performance with BP as its top pick in Europe and ConocoPhillips the most compelling of the American Majors, Barclays said.
The bank downgraded GALP in Portugal to Equal Weight. GALP now screens as expensive versus peers with a first quartile valuation at odds with a third quartile performance, Barclays said.
Meanwhile, those stocks the bank had identified as undervalued in 2015 outperformed those it identified as overvalued by 13% over the past 12 months. Over the last five years, the average outperformance has been 9%, it said.
Barclays issued on Sept. 1 its Oil & Gas Benchmarks 2016: TransAtlantic Value report, which is its annual assessment of the operational and financial performance of the integrated companies over a 20-year history. It allows the bank to align companies to differing quartiles of performance and assess whether they are appropriately valued.
