ii view: Shell supercharges shareholder returns

Third-quarter results to 30 September

• Adjusted profit down 34% year-over-year to $6.2 billion
• Dividend unchanged from the previous quarter at 33.1 US cents
• Net debt of $39.1 billion
• Planning a fourth-quarter share buyback of $3.5 billion

ii round-up:

Oil and gas giant Shell (LSE:SHEL) today detailed quarterly profits matching City estimates but which pointed to a bigger than expected share buybacks.

Third-quarter profit of $6.2 billion fell by a third compared to autumn 2022, given Ukraine war fuelled energy prices, but with management upping fourth-quarter share buybacks to $3.5 billion from the $2.5 billion flagged in June.  

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Shares in the FTSE 100 energy major gained 2% in UK trading having come into this latest news up 14% year-to-date. That’s better than a 4% gain for BP (LSE:BP.) and in contrast to falls for US rivals Exxon Mobil Corp (NYSE:XOM) and Chevron Corp (NYSE:CVX) following recently announced significant planned acquisitions. 

Share buybacks announced by Shell for 2023 now total $23 billion, with the third-quarter dividend of 33.1 US cents unchanged from the prior second quarter but up from 25 cents this time last year. 

Better-than-expected upstream and deep water earnings during this latest quarter offset below forecast profits for its marketing division due to softening road fuel demand. 

Total capital expenditure during 2023 is now expected to come in at between $23 billion and $25 billion, down from a previous $23-$26 billion, with net debt marginally lower from the start of the year at $39.1 billion. 

Broker UBS reiterated its ‘buy’ stance on the shares post the results. Fourth-quarter figures are due 1 February.  

ii view:

Founded in 1907, the energy giant only last year changed its name from Royal Dutch Shell to just Shell, moving its headquarters from the Netherlands to the UK. Alongside its upstream exploration and production business, its downstream operations serve around 32 million retail customers a day at 46,000 service stations. Its Renewables and Energy Solutions division, generating power from wind and solar, remains relatively small, accounting for under 15% of sales. 

For investors, heightened interest rates and ongoing global economic uncertainty continue to cast a shadow over expected future energy demand. Costs for businesses generally remain elevated. Geopolitical factors cannot be ignored given the exit of Western business interests from Russia since early 2022 and the invasion of Ukraine, while Shell’s own dialling back of investments in climate friendly investments in 2023 does not sit comfortably with many investors.  

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On the upside, Shell's diversity of operations across oil, gas, chemicals, and alternatives regularly allows one area of strength to counter another of weakness. Net debt, heightened under the pandemic, has been reduced given the boost to energy prices and cashflows following the Ukraine war, while hopes that interest rates may now have peaked appear to be growing.  

For now, with the shares offering a forecast dividend yield of around 4% and the consensus analyst estimate of fair value at over £29.50 per share, Shell looks well worth its place in diversified 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