Currently above £28, the Shell (LSE:SHEL) share price trades within a few percentage points of a record high. The oil and gas giant is the FTSE 100 index’s largest company measured by market cap, valued at a whopping £182.4bn today.
However, Shell’s days as a FTSE 100 stock could be numbered. In recent days, Chief Executive Wael Sawan has mentioned the idea of abandoning a London Stock Exchange listing in favour of New York.
So, why might the firm consider such a move and what might the implications be for its share price?
Let’s explore.
Valuation concerns
The primary motivation behind a Shell move to the New York Stock Exchange would appear to be a feeling that its UK listing is damaging the company’s valuation.
A glance at the valuations of oil stocks on both sides of the Atlantic lends credence to these fears. Using their forward price-to-earnings (P/E) ratios as a gauge, Shell and BP trade at a discount compared to similar US companies, such as Exxon Mobil and Chevron.
| Stock | Forward P/E ratio |
|---|---|
| Shell | 9.03 |
| BP | 7.62 |
| Exxon Mobil | 12.97 |
| Chevron | 12.38 |
The outperformance of US stocks in recent years over UK shares hasn’t been confined to the energy sector. The S&P 500 has eclipsed the FTSE 100’s returns by a considerable margin.
With a greater number of potential investors, a deeper capital pool to tap into, and arguably a more pro-business environment, it’s easy to see why an American listing could be an attractive option.
Factors such as Brexit and domestic political instability have acted a drag on UK stocks as a whole. These are headaches that Shell might rather avoid.
Ultimately, a US move could possibly boost the Shell share price if it translates into more investment in the firm. Undoubtedly, this would please shareholders.
A change of strategy?
There are potential strategic reasons behind a possible relisting too. UK regulations on ESG standards are generally seen as stricter than those in the US. This is a critical consideration for a business that relies heavily on fossil fuels for its revenue.
Last month, Shell softened its energy transition targets to reduce its carbon emissions. It’s now pursuing a 15%-20% reduction by 2030, compared to a previous aim of 20% specifically.
Perhaps the board’s thinking runs deeper than the valuation alone. If Shell’s ambition is to slow down its green transformation even further, a US listing would make sense.
Such a change of strategy could have a material impact on the future direction of Shell’s share price. Although higher profits would be the rationale, it exposes the company to the risk of losing investor confidence due to a lack of consistency.
Furthermore, it might increase the likelihood of climate-focused lawsuits being brought against the company. After all, Shell’s no stranger to environmental litigation in the present day.
Still a FTSE 100 stock for now
It’s important to note that nothing is confirmed and a move may not materialise. Investors seeking to capitalise on a potential relisting would be wise to bear this in mind.
Nonetheless, I believe Shell shares merit consideration from those who want exposure to the oil and gas sector, whether they’re part of the FTSE 100 or not.
