Today I am looking at an eye-opening reason why an ambitious reshaping strategy is set to blast shares in Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US) skywards over the long term.
Reshaping plan bodes well for long-term growth
Wide-scale portfolio change continues to dominate the earnings outlook for Royal Dutch Shell, the company taking a more considered approach to capital outlay and becoming stricter in terms of locating those with stellar growth potential and divesting those which do not.
Shell has said that it is “entering a new phase of more substantial portfolio change, which will lead to a higher rate of divestments in the coming years”. The firm has pledged more than $120bn in capital expenditure up to 2015 as part of its push to introduce new capacity across the globe, and has five new gigantic profits ready to be brought online over the next year.
The oil leviathan has also disposed of $4bn of assets in the 12 months to June 2013, the company advised in August’s half-yearly report, taking total divestments over the preceding three-year period to $21bn.
Shell saw earnings drop 20% to $4.6bn, on a current cost of supplies basis, largely due to the impact of oil thefts and gas supply disruptions in Nigeria. The company has subsequently ordered a massive review into its operations there, a move that should lead to large divestments. It has also ordered a review into its North American businesses where market pressures continue to whack performance.
In my opinion, Shell’s rolling restructuring drive leaves it in great shape to realise stunning earnings growth, as massive investment into new and existing capacity drives revenues skywards, while its aggressive approach to divesting underperforming divisions bolsters the balance sheet.
And I believe that the company currently provides excellent bang for your buck, carrying a P/E rating of 8.6 and 8.1 for 2013 and 2014 respectively. This is within the bargain range below 10 and comfortably outstrips its oil and gas rivals, which were recently trading on an average prospective reading of 15.5.
