Eyes Down For Royal Dutch Shell Plc Results

Will interim figures from Royal Dutch Shell Plc (LON: RDSB) justify the market’s optimism?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

ShellShares in Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) have climbed 22% since their low last October, to 2,544p as I write these words.

That suggests the market is expecting a good year this year. And sure enough, after a 39% drop in earnings per share (EPS) recorded in 2013, the City’s analysts are predicting a 42% rebound this year, with a nice 4.4% dividend yield penciled in too. But are they right?

First half

First-half results are due on Thursday 31 July, and they should point us in the right direction. What are they likely to say?

For its first quarter, Shell revealed a fall in earnings on a current-cost-of-supplies (CCS) basis, from $8bn in the same quarter a year previously to $4.5bn. But that did included a $2.9bn charge that was mostly to cover impairments in its refinery business in Singapore, and once that and other one-offs were excluded, we were left with underlying CCS earnings of $7.3bn compared to $7.5bn previously. And underlying EPS on a CCS basis (again excluding those one-off items) dropped 2%.

A good result

That was significantly better than expected, and made up for a profit warning issued earlier in the year. And it enabled Shell to lift its first-quarter dividend by 4% to 47 cents per share.

We also heard that cash flow was up, from $11.6bn a year previously to $14bn. Shell also told us it plans to divest assets to the value of $15bn in 2014 and 2015, in order to improve profitability and support the payment of cash to shareholders.

While selling assets to pay shareholders might not sound like a great move, in an industry with intense competition and some over-supply, getting rid of lower-margin business and hanging on to more profitable assets could be a canny move. With upstream exploration costs rising and refinery profits squeezed by competition, having fingers in all of the oil & gas pies is not necessarily the best longer-term strategy.

Undervalued?

Should full-year forecasts prove accurate, we’d be seeing a P/E of about 11.5. And even though oil & gas is a bit cyclical, that doesn’t seem too demanding, especially as we’re expecting Shell to continue to cut costs and raise margins.

That 4.4% dividend yield looks attractive too, especially with a further rise to 4.6% suggested for 2015.

When we get those first-half results it will still be early days in Shell’s plans — but things are looking modestly bullish to me.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »