Analysts at Berenberg, a German investment bank, say Shell’s second-quarter trading update points to unusually strong cash flow, which could revive the case for bigger share buybacks. In a Thursday note, Berenberg kept a buy rating on Shell, an oil and gas major, ahead of its July 30th results.
The bank thinks the company’s liquefied natural gas (LNG) business could keep generating plenty of cash if prices stay elevated into the third quarter as Europe refills gas storage. That matters because cash flow is what funds dividends, debt paydowns, and buybacks, and Shell has leaned heavily on repurchases to return capital.
What Berenberg Expects
Berenberg’s base case is $3 billion of buybacks per quarter through 2026, but it said the stronger near-term backdrop could support a temporary step-up back to $3.5 billion. Notably, the bank barely changed its longer-range forecasts – lifting adjusted earnings per share by 0.3% for 2026 and 0.1% for 2027-2028 – and still left price targets unchanged at 40 pounds in London and 46 euros in Amsterdam.
When an analyst holds price targets steady but talks up a larger buyback, they’re pointing to a different driver of potential returns: per-share math. Repurchases shrink the share count, which can lift earnings per share and free cash flow per share even if total profits barely budge. That’s why the difference between $3.0 billion and $3.5 billion a quarter can matter for how the stock trades in the near term, especially for investors focused on “shareholder yield” – the cash a company returns through buybacks and dividends.
Why LNG Prices Matter
Shell is one of the world’s largest LNG traders, and its integrated gas division has been a major profit driver. European gas storage refilling, combined with potential supply disruptions, has kept LNG prices elevated. If that continues, Shell’s cash flow could stay robust, supporting a higher buyback pace. The flip side is that if LNG prices cool and cash flow fades, the market may pay more attention to whether Shell can sustain its current pace of repurchases than to small changes in out-year earnings estimates.
Berenberg’s view aligns with broader market expectations that energy companies will continue to prioritize shareholder returns. Shell has already been buying back shares aggressively, and a return to $3.5 billion quarterly would signal confidence in its cash generation. For context, Shell’s buyback program has been a key reason its stock has held up relative to some peers, as it reduces the number of shares outstanding and boosts per-share metrics.
What It Means for Investors
For everyday investors, the key takeaway is that Shell’s cash flow strength could lead to more money being returned to shareholders. Buybacks don’t put cash directly in your pocket like dividends, but they can increase the value of each share you own over time. If Shell does step up buybacks, it could provide a tailwind for the stock price, especially if earnings per share rise as a result.
However, investors should also watch LNG prices closely. If they fall, Shell’s cash flow could weaken, and the buyback pace might need to be dialed back. That’s why Berenberg’s unchanged long-term forecasts suggest the bank sees the potential buyback boost as temporary rather than permanent.
Berenberg’s analysis also highlights the importance of looking beyond just earnings growth. For companies like Shell that generate significant cash, how that cash is deployed – whether through buybacks, dividends, or investments – can be just as important as the profit numbers themselves.
In related analyst moves, Berenberg has also been bullish on other energy and industrial names. For instance, the bank recently expected Repsol to beat Q2 forecasts on strong refining margins, and it sees Lagercrantz hitting 15%+ growth in FY 2027 via M&A and organic gains. Meanwhile, Deutsche Bank's Q2 earnings preview also highlights how buybacks can shift investor focus.
Shell reports its second-quarter results on July 30. Investors will be watching not just the headline profit numbers, but also the company’s cash flow and any update on its buyback plans. If Berenberg’s read is correct, the market could see a bigger return of capital than previously expected.
