LONDON BRIEFING: Shell, under pressure to break up, promises returns

(Alliance News) - Royal Dutch Shell on Thursday pledged additional returns to shareholders following the sale of its Permian Basin assets.

The oil major swung to a loss in the third quarter against a backdrop of activist investor pressure.

Shell on Wednesday said it held talks with Third Point, after the activist shareholder went as far as suggesting the oil major should be split up. Reuters, citing a source close to the matter, on Wednesday reported Daniel Loeb's Third Point has built a stake worth nearly USD750 million in Shell.

For the three months to September 30, Shell posted adjusted earnings of USD4.1 billion, down from USD5.5 billion in the second quarter, but surging from USD955 million in the third quarter last year.

However, Shell swung to a third quarter loss attributable to shareholders of USD447 million, from a USD489 million profit a year ago, and also swung to a current cost of supplies attributable loss of USD988 million from a USD177 million profit a year ago. Shell said the attributable losses included a USD5.2 billion non-cash charge related to the fair value accounting of commodity derivatives.

Turning to shareholder returns, Shell declared a quarterly dividend of USD0.24, steady on the second quarter and up from USD0.1665 paid out for third quarter a year ago.

Shell said USD1.0 billion in buybacks were completed in the third quarter out of USD2 billion planned for the second half. In addition, Shell said a USD7 billion return is in store for shareholders in 2022 following the sale of its Permian assets in the south west US to ConocoPhillips earlier this year.

"This quarter we've generated record cash flow, maintained capital discipline and announced our intention to distribute USD7 billion to our shareholders from the sale of our Permian assets. Today, we also set a new 2030 target to halve the absolute emissions from our operations, compared to 2016 levels on a net basis. Altogether, this is clear evidence of how we are accelerating our 'powering progress' strategy, purposefully and profitably," said Chief Executive Officer Ben van Beurden.

Commented Peter McNally, global lead for Industrials, Materials & Energy at research house Third Bridge: "Shell has been active during the commodity price recovery divesting assets in both upstream and downstream operations around the world. However, Shell has been hesitant at deploying the proceeds from asset sales and the rising operating cash flow back into existing operations, and the company has announced that the proceeds from the Permian sale would be used for additional shareholder distributions and further strengthening of the balance sheet."

He added: "The company is on firmer financial footing, and the question is in which areas will Shell choose to make its future investments - meeting the near term needs of energy supplies in oil & gas or the longer-term climate initiatives it has planned."

Shell A and B shares were down 1.7% early Thursday.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: down 0.1% at 7,247.07

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Hang Seng: down 0.4% at 25,529.32

Nikkei 225: closed down 1.0% at 28,820.09

DJIA: closed down 266.19 points, or 0.7%, at 35,490.69

S&P 500: closed down 0.5% at 4,551.68

Nasdaq Composite: closed marginally higher at 15,235.84

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EUR: up at USD1.1605 (USD1.1592)

GBP: up at USD1.3742 (USD1.3726)

USD: down at JPY113.55 (JPY113.80)

Gold: up at USD1,802.11 per ounce (USD1,792.13)

Oil (Brent): down at USD83.80 a barrel (USD85.32)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Thursday's Key Economic Events still to come

0955 CEST Germany unemployment

1345 CEST EU ECB interest rate decision

1400 CEST Germany consumer price index

1430 CEST EU press conference with ECB President Christine Lagarde

1100 BST Ireland retail sales

0830 EDT US gross domestic product

0830 EDT US jobless claims

1000 EDT US pending home sales index

1030 EDT US EIA weekly natural gas storage report

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UK Chancellor of the Exchequer Rishi Sunak was criticised for delivering a government budget light on environmental measures, and with a cut to taxes for domestic flights, just days before the UK hosts key Cop26 climate talks. Sunak announced a 50% cut in air passenger duty for flights within the UK, along with an increase in the tax for those flying more than 5,500 miles, and a continued freeze on fuel duty for motorists in the face of rising prices. He told members of Parliament that the net zero strategy announced last week to eliminate UK climate emissions was investing GBP30 billion to create the new green industries of the future, championed London as a centre for green finance, and confirmed he would be hosting finance ministers at Cop26. But the lack of environmental focus in the speech, given four days before the UK plays host to the crucial UN summit aimed at driving greater climate ambition to avoid dangerous global warming, sparked immediate anger.

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The Group of 20 large industrialized nations wants to call for "immediate action" to limit global warming to 1.5 degrees at this weekend's summit in Rome. But delegations preparing the summit have not yet agreed whether the G20 will also commit to a common goal of net zero emissions of greenhouse gases or carbon dioxide neutrality by 2050, according a draft of summit's final declaration seen by dpa. The G20 countries together are responsible for more than 75% of all greenhouse gas emissions.

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The White House has responded sceptically after Iran's chief negotiator announced that Tehran was ready to return to nuclear negotiations in Vienna by the end of next month. Ali Bagheri, Iran's deputy foreign minister and chief negotiator for the talks, in a Twitter posting said Iran has agreed to restart negotiations by the end of November and a date for a resumption of talks "would be announced in the course of the next week". White House press secretary, Jen Psaki, said administration officials were aware of Bagheri's comments but were waiting for European officials to confirm that Iran is indeed ready to resume talks.

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BROKER RATING CHANGES

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CREDIT SUISSE CUTS JUST EAT TAKEAWAY.COM PRICE TARGET TO 9,300 (9,900) PENCE 'OUTPERFORM'

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JPMORGAN RAISES WPP PRICE TARGET TO 1330 (1310) PENCE - 'OVERWEIGHT'

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COMPANIES - FTSE 100

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Lloyds Banking reported a rise in third-quarter earnings in Charlie Nunn's maiden results report at the helm of one of the UK's largest lenders. For the third quarter to September 30, net income was up 20% to GBP4.08 billion from GBP3.40 billion last year, and net interest income rose 8.8% to GBP2.85 billion from GBP2.62 million. Lloyds posted pretax profit of GBP2.03 billion, almost doubled from GBP1.04 billion last year, with net interest margin of 2.55%, up from 2.42%. Looking ahead for 2021 as a whole, Lloyds expects net interest margin to be modestly above 250 basis points and also continues to target a return on tangible equity in excess of its cost of equity in the medium term. "Building on the strengths of the group and its achievements in recent years, there are clearly significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow through disciplined investment, empowering colleagues, enhancing collaboration and increasing agility across the group. This can be built on the foundation strengths of customer service, distribution, and cost management," CEO Nunn said.

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DS Smith said its performance in the six months to this coming Sunday remained in line with expectations. The packaging company pointed to very positive box volume growth, good cost recovery through increasing pricing, and an enhanced performance from its US business which offset significant input cost increases. DS Smith said corrugated box volume growth was strong throughout the first half with the consumer goods sector accounting for over 80% of volume. "Looking forward, whilst the macro-economic environment remains uncertain, sustainability and the circular economy, together with e-commerce and digital enablement, remain more relevant than ever and are strong structural drivers of growth. Our long-term strategic focus in these areas as a solely fibre based business together with our comprehensive supply coverage, innovation platforms and robust supply chains, underpin our confidence in the prospects for the business," said Chief Executive Officer Miles Roberts.

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Advertising firm WPP reported third-quarter revenue of GBP3.24 billion, up 9.1% from a year before or 15% like-for-like. Revenue less pass-through costs was GBP2.64 billion, up 9.9% or 16% like-for-like. WPP raised its full-year 2021 guidance, expecting like-for-like growth in revenue less pass-through costs of 11.5% to 12%, with a headline operating margin slightly above 14%. "Clients across all sectors and geographies are making significant investments in marketing, particularly in digital media and ecommerce services," said CEO Mark Read. "We are now above 2019 levels in all of our business lines, and with the actions we have taken over the last three years, we are even better positioned for growth."

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COMPANIES - FTSE 250

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Synthomer said it has agreed to buy the adhesive resins business of Eastman Chemical Co for USD1 billion in cash. To help pay for it, Synthomer set out plans to raise GBP200 million from a share placing, with 21% shareholder Kuala Lumpur Kepong pledging to take part in line with its existing holding. The placing will be priced in a bookbuild run by Barclays and Numis. The remainder of the price tag will be met from a new USD300 million debt facility and existing cash. Synthomer said the acquisition is expected to deliver double-digit earnings per share accretion in the first year.

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COMPANIES - GLOBAL

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Anheuser-Busch InBev reported a stronger performance in the third quarter of 2021, with a rise in profit and revenue leading to an improvement in annual guidance. For the three months ended September 30, the Leuven, Belgium-based brewer reported normalised earnings before interest, tax, depreciation and amortisation at USD5.12 billion, up 3.0% at USD4.89 billion the same period a year before. This was on revenue which grew 7.9% year-on-year to USD14.27 billion from USD12.82 billion, driven by a 3.4% increase in total volumes to 151.6 million hectolitres from 146.6 million hectolitres the prior year on growth from the EMEA, Middle Americas and South America regions. AB InBev said the combined revenue of its global brands - Budweiser, Stella Artois and Corona - increased 5.0% globally and 9.3% outside of their respective home markets in the third quarter.

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Thursday's Shareholder Meetings

Brooks Macdonald Group PLC - AGM

City of London Investment Trust PLC - AGM

Filtronic PLC - AGM

Highbridge Tactical Credit Fund Ltd - AGM

JD Sports Fashion PLC - GM re proposed share sub-division

National Milk Records PLC - AGM

South32 Ltd - AGM

Tirupati Graphite PLC - AGM re acquisition, warrants

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By Tom Waite; thomaslwaite@alliancenews.com

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