Shell: Remuneration And Consistency Are Key, Reiterating Buy

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Iran's attack on Israel has escalated tensions, causing crude oil futures to jump. The country's crucial role in OPEC and potential sanctions could lead to sudden changes in oil prices.Shell is ...

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The country's crucial role in OPEC and potential sanctions could lead to sudden changes in oil prices.Shell is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4725536-shell-remuneration-and-consistency-is-key-reiterating-buy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Shell: Remuneration And Consistency Are Key, Reiterating Buy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nShell: Remuneration And Consistency Are Key, Reiterating Buy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-08 16:11 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4725536-shell-remuneration-and-consistency-is-key-reiterating-buy><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Iran's attack on Israel has escalated tensions, causing crude oil futures to jump. The country's crucial role in OPEC and potential sanctions could lead to sudden changes in oil prices.Shell is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4725536-shell-remuneration-and-consistency-is-key-reiterating-buy\">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":"RYDAF","symbol_name":"SHELL PLC","start_time":0,"source_url":"https://seekingalpha.com/article/4725536-shell-remuneration-and-consistency-is-key-reiterating-buy","article_id":"2473289134","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1240936111/image_1240936111.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2473289134","pubTimestamp":1728375089,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Iran's attack on Israel has escalated tensions, causing crude oil futures to jump. The country's crucial role in OPEC and potential sanctions could lead to sudden changes in oil prices.Shell is progre","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"RYDAF":"SHELL PLC","SHEL":"SHELL PLC SPON ADS EACH REPR 2 ORD SHS"},"translate_title":"壳牌：薪酬和一致性是关键，重申买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"RYDAF":0.9,"SHEL":0.9},"content_text":"Iran's attack on Israel has escalated tensions, causing crude oil futures to jump. The country's crucial role in OPEC and potential sanctions could lead to sudden changes in oil prices.Shell is progressing well in lowering costs and improving FCF generation.Supportive shareholder remuneration and discounts to peers make SHEL a buy.Sundry Photography Following our June 2024 analysis, the company \"Is On The Right Track,\" today we are back to comment on Shell plc (NYSE:SHEL) (OTCPK:RYDAF). In our Shell coverage, we highlighted how OPEC+ countries announced additional voluntary cuts to oil production to support price stability. Currently, we see the Middle East crisis as a possibility to set oil prices on fire. After Iran attacked Israel, crude oil futures jumped more than 4%, with Brent rising from $74 to $78 a barrel and WTI above $74. Here at the Lab, we have fears of a more pronounced escalation in the region. Iran's attack on Israel has been judged to be one of the most significant military offenses, and there is concern about the subsequent responses from Israel, which has already promised retaliation against Tehran. This reiteration might also include possible attacks on Iran oil's infrastructure and other strategic sites. For this reason, oil companies might benefit from the current volatile macro environment; however, in our assessment, we also consider a negative narrative of a weakening global economic outlook, which would hurt fuel demand. Additionally, Iran is a founding member of OPEC. In August 2024, the country's oil production hit its highest level in 6 years, with approximately 3.7 million barrelsfest, representing 3% of worldwide oil production. OPEC+ is expected to meet, but no significant upheavals in production policy are expected from the meeting. Iran plays a crucial role in oil production worldwide, and any sanctions could represent a sudden change in the scenario. As a reminder, two years ago, when Russia invaded Ukraine, the oil prices almost reached $130 per barrel. This very much supports our oil prices projection at $80 per barrel in 2025-2026. Here at the Lab, we see Shell delivering and remaining overweight based on 1) solid results thanks to operational performance, 2) progressive portfolio simplification, and 3) shareholders' remuneration. Mare Evidence Lab Rating Update Q2 Earnings Results And Our Upside Ahead Very briefly, in Q2, Shell beat Wall Street expectations (adj. net income beat consensus by 5%). Despite weakening margins in refining and natural gas trading, the company's adjusted profit reached $6.29 billion. Including the Q1 results, Shell's net income is already above $14 billion. As a reminder, in our assessment, we have a yearly profit of $26 billion. In Q2, the company's profits were impacted by a write-off. There was an $800 charge related to the interruption of construction work at the Rotterdam refinery in the Netherlands. For lower projected demand, the HEFA Biofuels Plant Rotterdam was paused. Additionally, the company divested to the Singapore Energy and Chemicals Park. This impacted the Q2 results with a non-cash post-tax impairment of $700 million. Going to the positive, we report the following CEO's words: Shell delivered another strong quarter of operational and financial results. We further strengthened our leading LNG portfolio and made good progress across our Capital Markets Day 2023 financial targets, including $1.7 billion of structural cost reductions since 2022\". Our team believes Shell is still undervalued. Looking ahead, the company might be positively impacted by:  (Solid execution). The company delivered another strong quarter with lower-than-expected operating costs (Fig 1). This drove a bear in the cash flow generation. In detail, the company's organic cash spending was down by approximately 4% on a yearly basis. This is below the company's guidance. That said, during the analyst call, the CEO was clear that spending will increase during H2 due to several projects still to come live. However, the company remains comfortable with the CAPEX investments. At the current rate, this means that Shell is trading at an FCF yield of almost 13%; (ESG upside) In the last half of the year, some activist investors and shareholders of Shell have been more critical of the oil giant's energy transition strategy. This was because the company watered down some emissions reduction targets. Since then, in Shell's latest energy transition strategy update, the company has outlined steps and prospects for 2024 and beyond (Fig 2). There is now an aim to reduce the net carbon intensity of third-party use from 15% to 20% by 2030. The CEO also confirmed that it is \"absolutely committed to the goal\" of reaching zero emissions by 2050, adding that the company is \"exercising strategic partnerships\" to reduce emission targets; (Still supports in remuneration). Distributions remain unchanged, and there is a desire for consistency. Shell maintained its buyback rate program and left the DPS unchanged. This is at 43% of CFFO in the last year. This is above the upper end of the company's guidance, set between 30% and 40%. The company said it will continue repurchasing stock while 'the share price is where it is.' This suggests the rate of buybacks is unlikely to change in the near-term horizon and provide investors with clear downside protection. These were not just words. Indeed, the company launched another share buyback program worth $3.5 billion (Fig 3).  Shell cost saving Fig 1 Shell ESG Performance Fig 2 Shell Remuneration Fig 3 Earnings Forecast And Valuation The CEO is progressing well both in reducing CAPEX and OPEX. The company is already tracking cost savings at >50% compared to the 2025 company's internal objectives. This excludes the latest exit step and more trimming in the marketing division. More importantly, H1 cost savings are from operational efficiencies rather than new disposals. Following these results, we forecast Corporate Costs at $650 million for the year, with a 2.5% cut compared to the 2023 expenses. The company has positively impressed year-to-date and has made impressive steps since the June 2023 CMD. Furthermore, these oil price shocks favor oil peers; even if the energy market will likely be normlised in the medium term, Shell has a better cost structure and a commitment to return 30/40% CFFO to shareholders. The company's upstream is focused on nine core positions and is on track to reach >500 kboe/d by 2027. These generate group simplification and >80% of upstream CFFO. Our 2024 upstream divisional EBITDA reached $30 billion based on the current spot rate. We are 10% ahead of Wall Street, next year's $80 barrel Brent assumption. For this reason, Shell remains a top pick alongside Eni due to its defensive characteristics and exposure to NatGas. Regarding the Integrated Gas and the H1 results, we see the $20 billion EBITDA projection as achievable. So, we decided to maintain our net profit estimate of $26 billion. With the ongoing de-gearing and FCF strength, we anticipate a 10% cash return in 2025 and the potential for zero net debt by 2030. Our 2024 yearly net debt reached $32.2 billion, signing a minus 8.9% compared to the previous year's debt. Considering the $3.5 billion quarterly buyback, Shell has a solid balance sheet with a 7% gearing ratio. Despite the current oil price environment and more resilient performance in the Integrated Gas division, we are still not pricing a 3% net income increase in 2025. Technical guidance did not change, and the implied CAPEX run rate (including M&A) is between $22 and $25 billion. We forecast D&A at $23 billion in 2024, with tax at $15 billion. So, we confirm our net income of $26 billion with earnings per share of £3.21. In our numbers, Shell has an attractive P/E. Compared to EU oil, Shell has a lower yield and higher cash flow forecasts. However, the company trades below its 5-year average and the sector median. Applying a 10x P/E, aligned with the TTM forward peer estimates set at 10.74x (Fig 4), we arrived at a target price of 3,200 pence ($80 in ADR). This is supported by a long-run oil price of $75 per barrel and an EV/DACF multiple of 5.5x. On a P/E basis, the company trades at a discount vs. US peers (Exxon and Chevron have a P/E higher than 12x). SA Valuation Data Fig 4 Risks We have covered Shell's risks well, and we report the following downside:  Volatility in natural gas and oil prices. We also report that the $1/mmbtu move in NatGas's price differential equals $390 million of the company's earnings; They might be risks related to ESG targets; The company has various businesses as a chemical operator. For this reason, we see risks in the crack spread for the refining division; In our TotalEnergies follow-up note, we might see downside risk to the TTF gas forward curve; 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 A new buyback and a discount compared to peers make Shell a clear buy. Solid execution and capital discipline will close this valuation gap. Additionally, these ongoing geopolitical challenges might favor Shell as a defensive play. Our buy rating is then confirmed.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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