Shell plc (SHEL.L)

Equity
UK
Energy

RISK

RETURN

Key risk factors

Low price volatility

Good trading liquidity

Limited default risk

Key return factors

Undervalued vs peers

Decent dividends

Somewhat favourable analyst view

Company profileShell plc operates as an energy and petrochemical company Europe, Asia, Oceania, Africa, the United States, and Rest of the Americas. The company operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. It explores for and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; produces gas-to-liquids fuels and other products; and operates upstream and midstream infrastructure necessary to deliver gas to market. The company also markets and trades natural gas, liquefied natural gas (LNG), crude oil, electricity, carbon-emission rights; and markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels. In addition, it trades in and refines crude oil and other feed stocks, such ase low-carbon fuels, lubricants, bitumen, sulphur, gasoline, diesel, heating oil, aviation fuel, and marine fuel; produces and sells petrochemicals for industrial use; and manages oil sands activities. Further, the company produces base chemicals comprising ethylene, propylene, and aromatics, as well as intermediate chemicals, such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide, and ethylene glycol. Additionally, it generates electricity through wind and solar resources; produces and sells hydrogen; and provides electric vehicle charging services, as well as electricity storage. The company was formerly known as Royal Dutch Shell plc and changed its name to Shell plc in January 2022. Shell plc was founded in 1907 and is headquartered in London, the United Kingdom.

Valuation: Undervalued

Multiple

TTM

NTM

P/E

13.00

0.10

PEG

2.00

P/B

1.30

P/S

0.80

P/FCF

7.20

0.10

EV/EBITDA

4.50

0.70

Considering past and projected metrics, the stock is 'cheaper' than its peers. Specifically, the stock is cheap' on P/E, undervalued on EV/EBITDA, underpriced on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 15ppts and its growth accelerated by 5ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 3257 and suggests 16% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 7138.0. This translates into 154% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 2748.0. This is equivalent to 2% downside potential in the worst case.

Profitability: Good

RoE

Shell plc reported a return on equity (RoE) of 9.7% in the last 12 months, down from 10.3% in FY23. The market consensus projects an RoE of 5.5% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 4.5% in the last 12 months, a decrease from 4.6% in FY23. The market analysts predict that RoA will be 2.6% in FY24, again weaker than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 5.8%, below the peers. The consensus estimate for FY24 for RoCE is 7.0%, again behind the peers.

Net margin

EBITDA margin

Historically, SHEL.L has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 6.0%, down from 6.1% in FY23. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 20.3% in the last 12 months, up from 19.9% in FY23.

RoIC / WACC = 2.4(strong value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.4 in the past several years. This ratio implies a strong shareholder value creation.

Growth: Average

Revenue

EBITDA

EPS

Free cash flow

SHEL.L reported revenue of USD 302 139mn in the last 12 months, down 5% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 4% from FY23 to USD 2.73. Market expects EPS to reach USD 4.23 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. Net income has fallen rapidly in recent years (strongly negative). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been strong and significantly above its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth.

Volatility: Low

In normal market circumstances, SHEL.L is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from low to mild.

Stress-test: Modest

In highly turbulent market conditions, SHEL.L is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited.

Selling difficulty: Low

SHEL.L boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.