ii view: Shell profit breaks records as oil boom continues

Buoyed by a massive increase in profits, this oil major is focusing on shareholder returns again. We assess prospects. 

First-quarter results to 31 March

• Adjusted profit up 43% from Q4 2021 to $9.1 billion (£7.28 billion)
• Dividend up 4% from Q4 2021 to 25 US cents
• Net debt down 8% to $48.5 billion (£38.8 billion)

ii round-up:

Oil giant Shell (LSE:SHEL) has posted a significant gain in first quarter adjusted earnings.

Adjusted profit of $9.1 billion (£7.3 billion) is up 43% versus the last three months of 2021 and is almost three times the $3.2 billion reported a year ago. The oil major has also confirmed a $3.9 billion post-tax charge following its exit from Russia. 

Shell shares rose by more than 2% in UK trading. That leaves them at multi-year highs and, even prior to today’s results, had risen 37% so far this year. These latest figures come with the price of Brent crude up by a similar amount during 2022 and compares to a gain of under 2% for the FTSE 100 index. Shares for rival BP (LSE:BP.) are up by around a quarter year-to-date. 

• Discover lessons on how to be a better investor here
• When markets fall heavily, here's what to avoid doing 

Shell's first quarter dividend of 25 US cents per share is 4% better than the fourth quarter of 2021 and group net debt of $48.5 billion is down 8%. 

Of the $8.5 billion share buyback programme announced for the first half of 2022, $4 billion has been executed already. The remaining $4.5 billion is expected to be completed before Shell's second quarter results, currently scheduled for 28 July. 

ii view:

In 2021, the former Royal Dutch Shell changed its name to Shell. It has interests in exploration and production, refining and marketing, and petrochemicals. Its serves more than 30 million customers at around 46,000 retail service stations every day. Like rivals, Shell is now investing in building and expanding its Renewables and Energy Solutions business, a unit which was formerly part of its Integrated Gas division. 

• Shares for the future: my five best shares for long-term investment
• Stockwatch: core growth and inflation protection

For investors, charges in relation to its Russian assets were clearly not in the script at the start of the year. Calls for a government windfall tax are unlikely to disappear given energy costs are hitting consumers hard, while tackling climate change issues remains a pressing need for both the industry and governments globally. 

On the upside, rocketing energy prices year-to-date have provided a massive boost to profits. Big increases following the pandemic had already allowed Shell to reduce net debt and begin a renewed focus on shareholder returns. A forecast dividend yield in the region of 3.6% is not derisory in an environment of still low if rising interest rates. On balance, and with the consensus analyst estimate of fair value currently sat at over £26 per share, Shell looks to remain deserving of its place in many investor’s portfolios. 

Positives: 

• Geographically diverse operations
• A focus on shareholder returns

Negatives:

• High competition for renewable energy assets
• The weather can raise operational challenges

The average rating of stock market analysts:

Strong buy