Shell Is On The Right Track

seekingalpha06-19

Q1 results show solid earnings and operational performance.One year has passed since the Shell 2023 Capital Market Day presentation. The company's strategy, which focuses on capital discipline, cost ...

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The company's strategy, which focuses on capital discipline, cost ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699900-shell-is-on-the-right-track\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0320765646.SGD","symbol_name":"FTIF - Franklin Income A MDIS SGD-H1","start_time":0,"source_url":"https://seekingalpha.com/article/4699900-shell-is-on-the-right-track","article_id":"2444930084","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1463441609/image_1463441609.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2444930084","pubTimestamp":1718742766,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Q1 results show solid earnings and operational performance.One year has passed since the Shell 2023 Capital Market Day presentation. The company's strategy, which focuses on capital discipline, cost r","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0320765646.SGD":"FTIF - Franklin Income A MDIS SGD-H1","LU0098860793.USD":"FRANKLIN INCOME \"A\" INC","LU2237443549.SGD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A MIncA SGD-H","BK4561":"索罗斯持仓","RYDAF":"SHELL PLC","BK4585":"ETF&股票定投概念","LU1162221912.USD":"FRANKLIN INCOME \"A\" (USD) ACC","LU0300736492.USD":"FRANKLIN NATURAL RESOURCES \"A\" (USD) INC","BK4201":"综合性石油与天然气企业","LU2237443622.USD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A Acc USD","BK4588":"碎股","LU0300736062.USD":"FRANKLIN NATURAL RESOURCES \"A\" (USD) ACC","SHEL":"SHELL PLC SPON ADS EACH REPR 2 ORD SHS","LU2237443978.SGD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A Acc SGD-H","LU2236285917.USD":"ALLIANZ GLOBAL INCOME \"AMG\" (USD) INC","TTE":"道达尔","LU2237443382.USD":"Aberdeen Standard SICAV I - Global Dynamic Dividend A MIncA USD"},"translate_title":"壳牌走在正确的轨道上","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TTE":1,"SHEL":1,"RYDAF":1},"content_text":"Q1 results show solid earnings and operational performance.One year has passed since the Shell 2023 Capital Market Day presentation. The company's strategy, which focuses on capital discipline, cost reduction, and portfolio simplification, is progressing well.FCF yield supports Shell's remuneration, and there is also a deleveraging path to consider. This means a buy.   Robert Way/iStock Editorial via Getty Images Following our update on TotalEnergies SE (TTE) with a solid buy rating, it is time to review our Shell plc valuation (NYSE:SHEL) (OTCPK:RYDAF). As a reminder, the company is the result of the merger between Shell Transport and Trading and Royal Dutch Petroleum, completed in 2005. In 2022, Royal Dutch Shell was renamed Shell and moved its headquarters to the UK. The company is one of the super-major oil players with arms in low-carbon activities (hydrogen, renewable power, & carbon capture and storage), petrochemicals, and refining & marketing, with more than 45,000 stations. Aside from oil exploration and production, Shell also has one of the most extensive LNG portfolios globally. Here at the Lab, we positively view the OPEC+ Decision, and we see support from a favorable environment for the European integrated oil and gas sector. Taking advantage of TotalEnergies' follow-up, after a brief Q1 comment, we believe Shell still has the potential to grow its share price on a twelve-month basis. Our buy rating was backed by 1) higher oil reserves, 2) OPEX reduction with a solid allocation on CAPEX allocation toward green investments, and 3) supportive shareholders' remuneration across the cycle. Mare Ev. Lab Rating Status Q1 results and Back To Basics Review Going to Q1, the company delivered robust results (Fig 1). Shell adj. earnings reached $7.7 billion, with support across all businesses. These Q1 results further demonstrate the progress that Shell is making under the new management team. In number, Q1 CFFO was at $13.3 billion and includes working capital requirements of $2.8 billion. On a divisional basis, Shell Integrated Gas performed strongly with $3.7 in earnings. This was achieved by higher volume and lower operating costs. Shell reported a write-off in Albania and favorable deferred tax movements in the upstream business. In the segment, the company achieved $1.9 billion in adj. earnings. Cash flow before working capital was above $16 billion (the highest level since Q3 2022), and the company reduced its net debt by $2 billion while progressing with the buyback for a quarterly total of $3.5 billion (Fig 3). Shell Q1 P&L Update Source: Shell Q1 results presentation - Fig 1 After one year following the CMD in mid-June 2023, we can see that Shell's strategy remains the management team's focus. Going back to the basics, we report the following: (Shell strategy is delivering). Q1 results demonstrated better operational performance, focusing on capital discipline and cost. Shell is progressing well in operating cost reductions, and despite a plus 5% inflation, the company reduced costs by 3% year-on-year. In addition, the company's upstream production has been stable for the first time since 2019, and critical projects such as those in the Gulf of Mexico and Brazil are set for an imminent ramp-up. Shell decided to de-risk its Namibian discoveries, and the Integrated Gas segment increased production by 2% in the quarter. (Portfolio simplification is moving on). The cash CAPEX outlook for the group has been reduced from $23/27 billion to $22/25 billion per year for 2024 and 2025. Elsewhere, we focus on disposing of non-core assets, such as its 77% stake in Shell Pakistan (Fig 2). Shell also decided to disinvest some of its Nigerian assets, and as already reported, the company re-focused its portfolio assets in Albania. The group simplified its approach to its energy transition strategy and removed the 2035 target as a net carbon intensity indicator. In addition, we should report that Shell's executive team has become smaller. Alongside the Legal director and the HR manager, just five executives report to the CEO. Shell appears more agile with a greater focus on delivery. According to our calculations, Shell's payout ratio from CFFO is 40%. For this reason, it is possible that the DPS could be lifted by approximately 10% with the Q2 results. On the Q&A analyst call, the company's management highlighted that, as long as Shell's stock remains cheap, any inorganic activity will be small in scale, and buybacks will be used. This means a 10% total cash return on the current stock price (combining dividend and buyback yield). Shell Portfolio Update Fig 2 Shell Remuneration Fig 3 Earnings Changes and Valuation Despite the strong performance, Shell's valuation remains attractive. Following the Q1 financials, we decided to increase our estimates for the higher Integrated Gas projection at the lab. We have unchanged oil prices at $85 and $80 per barrel in 2024 and 2025-2026, respectively. In addition, taking advantage of the TotalEnergies update, we see an average LNG selling price of $9/Mbtu in 2024. In our numbers, we forecast Shell's net earnings at almost $26 billion for the year. On a currency basis, we arrived at an EPS of £3.21, and applying an unchanged 10x P/E estimates; we slightly increased the company's valuation to 3,200 pence ($80 in ADR). Here at the Lab, we remain buy-rated, based on a solid FCF yield and an unjustified discount compared to the US peers. Both Exxon and Chevron's P/E are above 12x, with a lower remuneration return. Risks Downside risks include volatility in natural gas and oil prices. In addition, the company has various businesses as a chemical operator. For this reason, we see risks in the crack spread for the refining division. As already mentioned, in our TotalEnergies follow-up note, we believe EU gas storage will likely be complete by late September, and we might see downside risk to the TTF gas forward curve. Being an oil major, poor project execution and exploration risks must be noted. Weaker-than-anticipated operating cash flow could reduce the buyback level over the coming years and negatively affect Shell's stock price. Conclusion The company reported a robust set of results. Here at the Lab, we usually focus on new upside. However, relative to Shell, the new strategy of portfolio simplification, volume growth, and disciplined CAPEX is already bearing fruit. FCF yield supports shareholders' remuneration well, and considering a deleveraging path, Shell is a clear buy.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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