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Shell slowly shifts gear

Do the oil major's executives dream of electric vehicles?
July 27, 2017

Flush with heady visions of the electric vehicle era, comment pages are currently packed with prophecies for the end of oil. Against this backdrop, you might well expect Royal Dutch Shell (RDSB) to strike a defensive tone in its interim results. Not so. With a nose for a good headline, chief executive Ben van Beurden used an interview about his company’s cash-generative start to 2017 to declare that the next car he buys will be electric.

IC TIP: Buy at 2,122p

Mr van Beurden can afford to be sanguine, however fleetingly. While trading remains tough in the world of hydrocarbons, this isn’t immediately apparent from Shell’s recent numbers. Adjusted CCS earnings – the company’s measure for profit based on the current cost of supplies basis – leapt by 183 per cent year-on-year to $7.36bn (£5.62bn), while free cash flow for the period came in at $17.3bn.

The latter has been sufficient to cover the cash dividend for the last four quarters, whilst taking $8.8bn off net borrowings. Disposals have also helped a great deal, but will soon result in a dent in production, as was always inevitable. Assuming a barrel of crude remains stuck at $50, earnings from the upstream division will probably fall in the current quarter, thanks to a drop in 190,000 barrels a day (boepd) of divested production, a 40,000boepd drop in output from the Netherlands, and 30,000boepd due to field maintenance. Expectations that 90,000boepd will be restored in Nigeria are tempered by precarious security conditions.

Just as well then that Shell can count on other sources of cash generation. The refining, marketing and chemicals divisions are less sensitive to low oil prices; indeed, better operating conditions were demonstrated by the downstream business’ $5.02bn contribution to CCS earnings, 31 per cent up year-on-year.

Analysts at HSBC predict pre-tax profits of $20.6bn and EPS of $1.78 this year, up from $4.67bn and 92¢ in 2016.

ROYAL DUTCH SHELL (RDSB)  
ORD PRICE:2,122pMARKET VALUE:£174bn
TOUCH:2122-2123p12-MONTH HIGH:2,391pLOW: 1870p
DIVIDEND YIELD:6.7%PE RATIO:28
NET ASSET VALUE:2,338¢*NET DEBT:34%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend per share (¢)
20161070.322294
20171445.926294
% change+35+1755+182-
Ex-div:10 Aug   
Payment:18 Sep   
£1=$1.31. *Includes both 'A' and 'B' class shares.