Why is Shell so Cheap?

Our new video series looks at stocks that look cheap or expensive - and why. We kick off with 5-star stock Royal Dutch Shell

James Gard 14 June, 2021 | 10:42AM
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James Gard: Today I want to talk about one of the most undervalued U.K. companies in the Morningstar universe Royal Dutch Shell (RDSA). The oil giant got caught up in the pandemic crash as oil prices went negative cutting it's dividend for the first time since World War II.

With the drive towards all things ESG Shell might seem like a relic of the old economy especially with electric vehicles rapidly replacing petrol and diesel cars on the roads. To make matters worse Shell just lost a legal case in the Netherlands, where a court ordered the firm to cut emissions 45% over the next 10 years. But we think Shell will benefit from the oil price rebound as global lockdowns end and is stepping up its investment in renewable energy which stands it in good stead for the future.

We assigned Shell a Narrow moat rating and a fair value of GBP22.50 a share that makes today's share price of GBP13 look cheap. Not to mention the fact that it yields more than FTSE 100.

From Morningstar I am James Gard.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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James Gard

James Gard  is senior editor for Morningstar.co.uk


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