Troubled oil giant Royal Dutch Shell (LSE: RDSB) has a place in the portfolios – if no longer the hearts – of many followers of the Fool. By contrast, AIM-listed Eden Research (LSE: EDEN) is virgin territory. Yet it sprang into life yesterday, surging 28% in the session, alerting many investors to its prospects for the first time. Is now the time to dispense with the ailing fossil fuel giant and investing something fresh and natural instead?
Eden sprung into life after announcing that its Kenyan partner, Lachlan Kenya Ltd, had received approval to begin sales of Eden’s fungicide 3AEY, to be sold under the trade name Hawk. Eden, based in Oxford, is working to convert natural plant defence mechanisms into eco-friendly agricultural, medical and industrial problems, notably using terpenes to create low-risk agricultural chemicals.
Paradise Found
It has received an initial order to provide enough 3AEY to treat an area of around 1,667 hectares and is now due a milestone payment from Lachlan, plus royalties based on net sales. Chief executive Sean Smith says this represents Eden’s progression from being an IP development company to a commercial operation. This is the first commercial order for 3AEY Smith expects “many such orders” to follow, both from Kenya, and its European partners.
Some investors are already making money from Eden, whose share price has more than doubled since mid-April this year. It has been a long journey since the company was launched as Energiser in 1996, and has been through the slow process of carrying out carefully controlled global trials and making product submissions to the regulatory authorities. EU approval of 3AEY earlier this year gave it a boost, recently reported half-year revenues of £160,000 so just how far there is to go. Eden could grow into something special, but a long and thorny path lies ahead. As Kermit the Frog pointed out, it’s not easy being green.
Paradise Lost
Royal Dutch Shell’s garden is far less rosy, with the share price plunging 30% over the past 12 months. Today’s oil price of around $43 for a barrel of Brent crude will play havoc with all its hopes unless it quickly rebounds. The longer oil stays low, the more imperilled Shell’s dividend will be. Right now it yields a frankly crazy 7.29% but as we have seen lately, once the yield flies that high, a dividend cut won’t be far away.
Shell’s management will be more reluctant to cut than most, its dividends haven’t fallen since the war. After posting a third-quarter loss of $6.1bn, that prospect must be taken seriously, even if cash flow was relatively robust falling just 13%. Most of the loss was down to one-off upstream charges including $4.62bn related to impairments, redundancy and restructuring, but the future looks tough until the oil price recovers.
Green Future
There is no imminent hope of that with global inventories at record levels, although the Middle East could shock us at any moment and Saudi Arabia will come under pressure to change its supply strategy at December’s Opec meeting. Trading at 7.99 times earnings, now could be a good time to buy Shell if you think the worst is over.
We live in strange times, when the outlook for oil giant Shell is just as uncertain as at eco minnow Eden Research. But Eden’s management is certainly feeling brighter right now.
