Interactive Investor

ii view: Shell details mixed fourth quarter trading

Shares in this FTSE 100 company have outperformed rivals such as BP over the last year. Buy, sell, or hold?

8th January 2024 11:42

Keith Bowman from interactive investor

Fourth-quarter trading update to 31 December

ii round-up:

Energy giant Shell (LSE:SHEL) today detailed mixed trading in an update for the fourth quarter ahead of results due on 1 February.

A pick-up in gas trading compared to the prior third quarter is expected due to increased seasonal demand, but with trading at its chemicals and other products division expected to be significantly lower, resulting in an adjusted loss. 

Shares in the FTSE 100 giant retreated by more than 3% in UK trading having come into this latest news up by almost a tenth over the last year. That’s similar to French rival TotalEnergies SE (EURONEXT:TTE) and better than a 1% fall for BP (LSE:BP.).

Expected final quarter gas production of between 880–and-920 thousand barrels of oil equivalent per day (kboe/d) proved marginally ahead of City forecasts. Profit of up to $300 million for its Renewables and Energy Solutions division also topped hopes closer to $250 million. 

However, a significant drop in chemical and other product trading contrasted with analyst hopes for a small retreat. 

The energy giant also forecast fourth-quarter impairments of between $2.5 billion and $4.5 billion given factors including the planned sale of its Singapore chemical assets.

Broker UBS reiterated its ‘buy’ stance on the shares post the update given its estimated fair value target price of £30 per share. 

ii view:

Started in 1907, the energy giant changed its name from Royal Dutch Shell to just Shell back in 2022, moving its headquarters from the Netherlands to the UK. Alongside its upstream exploration and production business, its downstream operations provide products to more than one million business customers in over 150 countries. Its Renewables and Energy Solutions division, generating power from wind and solar, remains relatively small, accounting for sales of under 15%. 

For investors, the uncertain economic outlook including heightened interest rates continue to cast a shadow over expected future energy demand. Concerns for the economic health of Asian powerhouse China persist. Costs for businesses generally remain elevated, while Shell’s own dialling back of investments in climate change friendly investments during 2023 does not sit comfortably with all.  

More favourably, its diversity of operations across oil, gas, chemicals, and alternatives regularly allows one area of strength to counter another of weakness. Geopolitical factors such as a possible widening of the war in the Middle East offer potential support to the price of oil, while net debt heightened under the pandemic has subsequently been reduced. 

In all, and with the world’s need for fossil fuels likely to continue for sometime yet and the shares sat on a forecast future dividend yield of around 4%, this energy giant looks to remain worthy of its place in diversified investor portfolios.

Positives: 

  • Diversity of operations
  • A focus on shareholder returns

Negatives:

  • Uncertain economic outlook
  • The weather can raise operational challenges

The average rating of stock market analysts:

Buy

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