Shell Still Undervalued, say Analysts

Shell's quarterly earnings outperform its oil rivals, say Morningstar analysts, with its shares trading below their fair value

Allen Good 3 May, 2019 | 8:56AM
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Shell petrol station

Royal Dutch Shell (RDSB) posted an impressive first quarter with earnings growth across all of its operating segments and continued strong cash flow generation. The quarter stands out from other integrateds oil firms’ relatively weak reports and demonstrates the value of Shell’s integrated model while supporting our thesis of continued earnings and free cash flow growth during the next several years. As such, our fair value estimate and moat rating are unchanged. We continued to think this improvement is underappreciated by the market, leaving the shares trading a wide discount to our fair value estimate of £36 per share. The current share price is around £24.

Adjusted earnings slipped to $5.4 billion from $5.5 billion in the same quarter last year as improved performance in the operating segments was offset by higher corporate charges due to the absence of tax credits and changes related to the implementation of new accounting standard IFRS 16. Integrated gas segment earnings increased to $2.5 billion from $2.4 billion as higher realised prices and increased contributions from liquefied natural gas portfolio optimisation offset lower production and sales volumes. Upstream earnings improved to $1.7 billion from $1.6 billion last year as reduced operating expenses and higher volumes outweighed the impact of lower oil prices.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Royal Dutch Shell PLC B1,790.00 GBX-0.28Rating

About Author

Allen Good  Allen Good is a senior stock analyst covering the oil and gas industries.