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Shell’s re-shaping boosts shares

Investors this week warmed to an updated strategy for the oil super major.
June 7, 2016

Market concerns that Royal Dutch Shell (RDSB) has over-prioritised dividends amidst the oil price-sparked profit crunch were partially allayed this week, as a strategic update helped to push shares in the super major up by 3 per cent.

IC TIP: Buy at 1749p

That bullish call was underpinned by several positive financial forecasts. First of all, Shell believes synergies from the BG acquisition could now hit $4.5bn (£3.1bn) by 2018, $1bn more than first anticipated. This should support a potential $20bn-$25bn in organic free cash flow by the end of the decade, even if oil remains at $60 a barrel until then. The cyclical lull in prices means the $30bn of asset disposals targeted by 2018 will be a distinct challenge, although $6bn-$8bn of sales are expected this year.

 

In terms of investments, Shell has renewed its focus on deep-water projects in Brazil and the Gulf of Mexico - where production could double by 2020 - and chemicals, demonstrated by a decision to build a 1.5mtpa cracker and polythene plant in Pennsylvania.

Bloomberg consensus forecasts are for adjusted pre-tax profit of $9.69bn this calendar year and EPS of $1.12, against $13.5bn and $1.69 in 2015.