ii view: Shell beats forecasts and maintains $4 billion share buyback

A mix of traditional oil & gas and renewable energy operations and on a forecast dividend yield of 4%. We assess prospects.  

First-quarter results to 31 March

• Adjusted profit up 6% year-over-year to $9.65 billion
• Quarterly share buyback programme maintained at $4 billion
• Dividend unchanged from the previous quarter at $0.2875 per share

Chief executive Wael Sawan

"In Q1 Shell delivered strong results and robust operational performance, against a backdrop of ongoing volatility, while continuing to provide vital supplies of secure energy. We will commence a $4 billion share buyback programme for the next three months as part of our commitment to deliver attractive shareholder returns."

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ii round-up:

Energy giant Shell (LSE:SHEL) today detailed quarterly profits which beat City expectations, as it benefited from strong oil and gas trading and an improved operational performance. 

First-quarter adjusted profit rose 6% from the same quarter last year to $9.65 billion, exceeding analyst forecasts for $8 billion. Unlike rival BP (LSE:BP.), which reduced its spend, Shell also kept its quarterly share buyback programme at $4 billion, surpassing City forecasts for $3.1 billion.

Shares in the FTSE 100 company gained around 2% in UK trading having come into this latest news little changed year-to-date. BP are up around 3% in 2023, similar to the gain for the 100 index itself. 

The now UK headquartered Shell also declared a quarterly dividend of $0.2875 per share, unchanged from the previous quarter and matching forecasts. 

Integrated Gas profits of $4.9 billion rose a fifth year-over-year, helped by higher volumes and lower expenses, countering lower realised prices. Renewable and Energy Solutions earnings of $389 million rose from $343 million in Q1 2022 and exceeding estimates. 

Shell’s net debt of $44.2 billion at the end of the quarter fell slightly from the prior quarter’s $44.8 billion, leaving gearing at a ratio of 18.4%. 

Broker UBS repeated its ‘buy’ rating on the shares following the numbers. Second-quarter results are scheduled for 27 July. 

ii view:

Shell employs over 80,000 people across more than 70 countries. It changed its name from Royal Dutch Shell and moved its headquarters to the UK in 2022. Group strategy includes further simplifying the company and sharpening performance. Like rivals and under government climate change policy, it has also been investing in building and expanding its renewables production such as wind power and energy solutions in the form of hydrogen and biofuels.

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For investors, the uncertain economic outlook and possible recession continue to raise questions over expected global future energy demand. Despite its jump following Russia’s invasion of Ukraine, the price for Brent crude oil is down by more than 15% over the last six months. Tackling climate change remains a pressing need for both the industry and governments alike, while a consumer cost-of-living crisis has kept pressure on government to maintain and even raise windfall taxes. 

On the upside, Shell's diversity of operations across oil, gas, chemicals and alternatives regularly allows one area of strength to counter one of weakness. Elevated energy prices following the war in Ukraine improved group cashflow, allowing Shell to reduce debt and raise shareholder returns following a dividend cut during the pandemic. Interest rates may also have nearly peaked given indications of falling inflation. 

For now, and with the shares on a forecast dividend yield of around 4% and consensus analyst valuation of £28 per share, long-term fans of the company are likely to stay put.  

Positives: 

• Diversity of operations
• A focus on shareholder returns

Negatives:

• Highly uncertain economic outlook
• The weather can raise operational challenges

The average rating of stock market analysts:

Buy