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Shell digs in for the duration

Royal Dutch Shell's half-year results show that it remains intent on liberating cash flows
July 30, 2015

To no one's great surprise, Royal Dutch Shell (RDSB) reported a 47 per cent drop in underlying earnings at the half-year mark. But accompanying news that it intends to cut another 6,500 jobs buoyed the share price and underlines management's determination to optimise cash flows and provide adequate cover for future dividend payments - a key concern for City analysts and investors.

IC TIP: Buy at 1827.5p

With oil prices in the doldrums - and no respite in sight - management is digging in for a "prolonged downturn". Earlier this year Shell's chief executive, Ben van Beurden, unveiled plans to cut a further $15bn (£9.6bn) from the group's capital budget over the next three years. This year's capital investment will be reduced by around 20 per cent. But the challenge facing management is brought into focus by a near one-third fall in operating cash flows in the second quarter.

Shell has already managed to clear a number of the regulatory hurdles with regard to its $47bn takeover of BG Group (BG.). The capture of its UK rival is central to a transition in Shell's product mix in favour of natural gas. The integration of BG's assets, most notably those offshore of Brazil, should enable Shell to pare back exploration spending and consider wide-ranging asset sales.

Prior to these figures Deutsche Bank gave an adjusted EPS of 223¢ for the year-end, against 357¢ for 2014.

ROYAL DUTCH SHELL (RDSB)
ORD PRICE:1,828pMARKET VALUE:£116bn*
TOUCH:1,825-1,828p12-MONTH HIGH:2,599pLOW: 1,746pp
DIVIDEND YIELD:6.6%PE RATIO:13
NET ASSET VALUE:2,780¢*NET DEBT:15%

Half-year to 30 JuneTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
201422117.715694
201513811.413494
% change-37-35-14-

Ex-div: 13 Aug

Payment: 21 Sep

*Reflects both 'A' and 'B' shares. £1=$1.56. NB: The pounds sterling equivalent dividend payment will be announced on 4 Sep