On 26 July, Royal Dutch Shell (RDSB) formalised one of the largest share buybacks in corporate history. Before the end of 2020, the oil and gas giant plans to spend at least $25bn (£19.2bn) retiring its own equity, starting with up to $2bn-worth of purchases by 25 October.
Just over a month into the programme, investors have been given several insights into the likely pace of the programme, and how Shell and broker Citigroup views the oil major’s stock.
The first observation is that Shell is on course to surpass its $2bn target. As of 4 September, the company had retired 27.7m shares for £704m, at an average of just over £25m-worth of stock per day. At that rate, £1.63bn ($2.1bn) is set to be retired when the initial tranche ends, athough the daily purchases will need to step up if Shell is to hit $25bn by 2020.
Extrapolating that far ahead may be a stretch, but doubtful investors can at least take heart from the programme’s execution so far. While Shell’s shares may prove expensive on a longer-term view – say, for example, if the oil price were to crater in the next year – Citigroup has tended to make fewer purchases when the price of Shell’s ‘A’ class shares have traded above 2,542p, and vice versa (see chart). That has involved a fair bit of discretion, as total daily purchases have ranged from between £21.8m and £29.7m.
If Shell considers 2,542p 'fair value', then it should not be a surprise that all of the purchases have involved the ‘A’ class shares, which are subject to Dutch withholding tax, and tend to trade at a small discount to the ‘B’ class shares. Citigroup had been instructed to purchase “whichever of the A and/or B ordinary shares is economically the least expensive on a given trading day”.
