Royal Dutch Shell (RDSa.L) Investec Securities Price: 2141p | Target: 1936p | Rec: Hold Shell has underperformed the market by ~9% over the past 12 months on concerns over higher costs eating into record cash generation.

There were few new strategic messages in the Q3 statement.

Next major news is the management day, focused on global gas perspectives and Asia Pacific outlook in London on November 14.

Our TP rises modestly to 1936p as we nudge estimates higher and is set at a sector average 8x 2013E EPS.

We upgrade to Hold. * Reported inline Q3 clean net income of $6,559m vs our $6,672m (consensus was $6.651m) with both upstream at $4,888m and downstream at $1,731m showing growth on Q2.

However, results were slightly lower on a year ago.

In North America, the company made a loss in E&P as a result of non-productive leases and higher DD&A but this had been well flagged The company took 3 major FIDs in E&P - Tempa Rossa, Fram and the Quest carbon capture and storage project in Canada. * ‘Loadsamoney’: Shell is continuing to generate substantial cash flows and we expect the priority to be re-investment but the company could afford a more generous dividend if it chose to.

On our current CFFO forecast of $41bn for 2013, the company can push capex to $31bn+ of which 80% will likely be allocated to E&P.

Disposals are likely to slow down to c.$2-3bn p.a but Shell intends to cycle cash elsewhere in the portfolio.

Exploration will remain a priority – the key current well is the sidetracking of the high-impact Zaedyus discovery which is coming to a close.

Drilling in Tanzania is underway and Shell will drill 3 exploration wells in Alaska subject to US regulatory approval.

* Results teleconference by Simon Henry, CFO at 13:30 GMT (+ 44 207 190 1598).

There are likely to be few new strategic messages ahead of the management day, focused on global gas perspectives and Asia Pacific outlook on November 14. To access the full note please click here Analyst: Stuart Joyner To receive further information or change your Research Preferences please email: South Africa or United Kingdom IMPORTANT NOTICE: This communication forms part of an electronic communication sent to the intended recipient (or such persons authorised representative) for their sole use and is subject to important legal and regulatory restrictions, qualifications and disclaimers ("the disclaimer") that may be accessed and read by clicking on the following hyperlink:http://www.investec.co.uk/about-investec/what-we-do/investment-banking/investec-securities/company-research/morning-meeting-comments.html or copying the address into your Internet browsers address bar.

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