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UBS upgrades Shell to 'buy', highlights synergies of BG deal

LONDON (ShareCast) - (ShareCast News) - UBS (NYSEArca: FBGX - news) upgraded Royal Dutch Shell (Xetra: R6C1.DE - news) to 'buy' from 'neutral' and lifted the price target to 2,150p from 2,130p. Following a decline in the share price since the announcement of its proposed BG transaction both on an absolute and relative basis, the bank remains positive on the deal's merits. It noted that Shell (LSE: RDSB.L - news) has better clarified the benefits of the deal and initiated a more significant response to the lower oil price environment than at the start of the year.

"This, alongside the positive Q2 results, drives our growing conviction concerning the deal's prospects and we upgrade." UBS reiterated its view that strategically, BG's Brazilian position is unique among the international oil companies and provides Shell a low cost, high returning operation at scale and one that is complementary to its own global deepwater business.

It said the combination of leading liquefied natural gas operations could potentially generate significant follow-on opportunities and synergies.

UBS said it still believes the transaction will likely be passed by key regulators and shareholders with limited leakage of value, however the risk of it not passing still exists.

"We note since the proposed acquisition was announced BG has made operational and financial advances, while Shell's own recent shift, more aggressively cutting capex and costs and being clearer around post-deal intentions to re-shape its Upstream is important." At 1454 BST, Shell shares were down 0.3% at 1,854.38p.

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