Earnings per share at Royal Dutch Shell (LSE: RDSB) (LSE: RDSA) fell by 39% to $2.66 per share in 2013, after the whole of the oil industry suffered from a falling oil price and from increasing upstream exploration costs. Shell has also faced some specific difficulties of its own, in various parts of the world.
But for once, shareholders seem to have a longer-term outlook in mind, and Shell shares have pretty much kept track with the FTSE 100 over three and five years — and over the pat 12 months, we’ve seen a 12% rise to today’s 2,400p level, beating the FTSE’s 5%.
Strategy
To deal with its problems, Shell has been selling off some non-core assets and focusing on higher-margin and more sustainable operations.
How long will that take to feed through to a return to earnings growth? Well, if you ask a City analyst right now, they’ll probably say almost immediately — the current consensus suggests a 31% rise in earnings per share to $3.50 by December 2014, with a more modest 5% rise penciled in for 2015.
That’s still some way off the $4.61 per share the company reported for 2011, and it does still mark a deterioration in the outlook for Shell over the past 12 months, but it should hopefully show that we’re past the bottom.
In fact, a year ago, long before the tough 2013 outcome was known, the City’s professional soothsayers were talking of around $4.65 per share for 2014 — and even just three months ago, we had a consensus of $4.
Low valuation
Today’s forecasts put Shell shares on a forward price to earnings (P/E) ratio of 11.5, which is pretty low compared to the current FTSE 100 forward multiple of 16, and with that forecast 5% growth for 2015 dropping it even lower to 11, are the shares cheap?
Perhaps surprisingly, out of a sample of 41 analysts, only 15 are recommending we buy Shell shares, although only four have a sell recommendation out — the remaining 22 are staying neutral.
Why the lack of enthusiasm? That falling forecast trend over the past 12 months, coupled with cautious recommendations, does suggest we might see further downgrades over the next year.
Surely a bargain?
But I reckon Shell is a great long-term buy right now, especially with dividend yields of around 5% forecast for the next two years — and maybe first-quarter results due on 30 April will convince a few more City professionals to agree with me!
