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Eyes Down For Royal Dutch Shell Plc Results

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.

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