Overview
Royal Dutch Shell PLC (RDSA) is a Hague, Netherlands-based international group of energy and petrochemical company, which engages in exploring, producing, refining and marketing oil and natural gas. The company explores for natural gas and crude oil globally, in conventional fields and from other sources, such as coal formations, tight rock and shale. The group also manufactures and markets chemicals. Royal Dutch Shell PLC, which is incorporated in England and Wales, is the parent company of the Shell group. The group's operations are differentiated into three operating segments: Integrated Gas and New Energies, Upstream and Downstream. The Integrated Gas business is involved in the activities related to the liquefaction and transportation of gas. All the activities related to conversion of natural gas into liquid energies and other products are also part of Integrated Gas business. The activities related to Upstream, which includes extraction and exploration of natural gas, natural gas liquids and crude oil, and transportation and marketing of gas and oil, Oil Sands, which include the production of synthetic crude oil from bitumen extracted from mined oil sands. All such activities are carried out through the Upstream segment. The activities related to manufacturing, and marketing of oil products and chemicals are engaged through the Downstream segment. The company has an employee base of around 86,000 employees in over 70 countries globally.

The current Chair is Charles O. Holliday and was appointed in 2015 as Chair. Ben van Beurden holds the responsibilities of the Chief Executive Officer and joined the group in 1983. Jessica Uhl holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

  

Recent News

Royal Dutch Shell PLC will be announcing its second quarter results on 1st August 2019, Thursday along with interim dividend announcement for second quarter.

Trading Update Q1 FY2019

 
(Source: Quarterly Report, Company Website)

In the first Quarter of the financial year 2019, the company’s revenue stood at $83,735 million as against $89,235 million in Q1 FY2018. The decline in the revenue was driven by dip in the sales from upstream and downstream businesses in the current period. The total income and the other income stood at $85,662 million in Q1 FY2019 versus $91,114 million in Q1 FY2018. The company’s total expenditure had declined to $76,256 million in Q1 FY2019 from $82,747 million in Q1 FY2018. The PBT (Profit before tax) increased by 12.42 per cent from $8,367 million in Q1 FY2018 to $9,406 million in Q1 FY2019. The company’s profit for the year attributable to the shareholders stood at $6,001 million in Q1 FY2019 as against $5,899 million in Q1 FY2018. The basic earnings per share for Q1 FY2019 was $0.74 versus $0.71 in Q1 FY2018. The diluted earnings per share for Q1 FY2019 was $0.73 versus $0.70 in Q1 FY2018.

Segments

The company’s operations are divided into three reportable segments being Downstream, Upstream and Integrated Gas for management purpose. In the Q1 FY2019, the company’s revenue surged from the Integrated Gas segment. Cash flow from operating activities had increased from the Integrated Gas and Upstream business segments for the current period. The earnings in the Q1 FY2019 increased for the Integrated Gas segment. In the financial year 2018, the revenue from all the business segments had increased as against the FY2017 data.

Financial Highlights – Financial Year 2018 ($, million)


(Source: Annual Report, Company Website)
 
In the financial year 2018, the company’s revenue stood at $388,379 million as against $305,179 million in FY2017. The increase in the revenue was driven by an increase in revenue from all business segment for the period. The total income and the other income stood at $396,556 million in the Financial Year 2018 versus $311,870 million in FY2017.

Due to increased production from new field start-ups and ramp-ups, as well as lower maintenance activity, oil and gas production available for sale in 2018 remained flat at 1,338 million barrels of oil equivalent (boe). The company’s total expenditure stood at $360,935 million in FY2018 versus $293,740 million in FY2017.

The PBT (Profit before tax) increased by 96.48 per cent from $18,130 million in FY2017 to $35,621 million in FY2018. The company’s profit for the year attributable to the shareholders stood at $23,352 million in FY2018 as against $12,977 million in FY2017.

The basic earnings per share for FY2018 was $2.82 versus $1.58 in FY2017. The diluted earnings per share for FY2018 was $2.80 versus $1.56 in FY2017.
Capital investment was $24.8 billion in 2018 as compared with $24.0 billion in 2017, while the return on average capital employed rose to 9.4 per cent against 5.8 per cent in 2017.  In the Financial Year 2018, the Cash flow from operating activities stood at $53,085 million as against $35,650 million in FY2017.

Key Performance Indicators
 
Cash flow from operating activities
Cash flow from operating activities gives the total cash generated including receipts and payments. Royal Dutch Shell Plc’s cash flow from operating activities for the FY2018 stood at $53,085 million as against $35,650 million in FY2017.

Free cash flow
The total of cash flow from operating and investing activities gives the Free cash flow. The company’s FCF for FY2018 stood at $39,426 million as against $27,621 million in FY2017.

Return on average capital employed (ROACE)
ROACE is used to measure how efficiently the company is utilising its capital. The company’s ROACE was 9.4 per cent in FY2018 versus 5.8 per cent in FY2017.

LNG liquefaction volumes (million tonnes)
This indicator measures the operational performance of the company’s Integrated Gas business. LNG liquefaction volumes for the FY2018 stood at 34.3 million tonnes versus 33.2 million tonnes in FY2017.

Project delivery on budget
This KPI measures the company’s capability of project completion within budget and on time. In FY2018 the company’s Project delivery on budget was at 97 per cent versus 93 per cent in FY2017.

Financial Ratios
 
 

The reported gross margin in Q1 FY2019 increased by 3.1 per cent to 20.8 per cent against 17.7 per cent reported last year for the same period. The reported EBITDA margin of 17.4 per cent for the Q1 FY2019 stood lower than the industry median of 24 per cent. The reported operating margin in Q1 FY2019 increased by 2 per cent to 10.3 per cent from 8.3 per cent reported last year for the same period. Net margin reported was 7.4 per cent for the Q1 of the financial year 2019, reflecting an increase of 0.6 per cent when comparedwith last year data for the same period. Return on equity for the Q1 of the Financial year 2019 stood at 3 per cent, which was lower than the industry median of 3.1 per cent. On the liquidity front, Royal Dutch Shell Plc’s current ratio was lower than the industry median of 1.32, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Royal Dutch Shell Plc’s was 0.47x, which was higher as compared to the industry median of 0.42x, reflecting that the company is more leveraged as compared to its peers.
 
Share Price Performance
 

 Daily Chart as at July-24-19, before the market close (Source: Thomson Reuters)

On July 24, 2019, at the time of writing (before the market close, at 2:20 PM GMT), Royal Dutch Shell Plc shares were trading at GBX 2,545.50, down by 0.78 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,811.38/GBX 2,209.50. Stock’s average traded volume for 5 days was 5,582,037.80; 30 days – 5,514,475.27 and 90 days – 5,775,976.81. The average traded volume for 5 days was up by 1.23 per cent as compared to 30 days average traded volume. The company’s stock beta was 0.84, reflecting lower volatility as compared to the benchmark index. The outstanding market capitalisation was around £207.77 billion, with a dividend yield of 5.62 per cent.

Valuation Methodology
Method 1: Price to Book Value Approach (NTM)
 

To compare Royal Dutch Shell Plc with its peers, Price/Book multiple has been used. The peers are SBM Offshore NV (NTM Price/Book was 1.58), Exxon Mobil Corp (NTM Price/Book was 1.67), Verbio Vereinigte Bioenergir AG (NTM Price/Book was 1.38), DNO ASA (NTM Price/Book was 1.40) and Chevron Corp (NTM Price/Book was 1.55). The average of Price/Book (NTM) of the company’s peers was 1.50x (approx.)

Method 2: Price to Cash Flow Approach (NTM)
 


To compare Royal Dutch Shell Plc with its peers, Price/Cash Flow multiple has been used. The peers are Teekay Corp (NTM Price/Cash Flow was 6.26), SBM Offshore NV (NTM Price/Cash Flow was 6.81), Occidental Petroleum Corp (NTM Price/Cash Flow was 5.44), Tatneft' PAO (NTM Price/Cash Flow was 6.66) and Motor Oil Hellas Corinth Refineries SA (NTM Price/Cash Flow was 5.96). The Average of Price/Cash Flow (NTM) of the company’s peers was 6.20x (approx.)

Growth and Risk Assessments
 
The company had been carefully reviewing its costs and level of investments made for more improved financial and operational performance. In Brazil and India, the company had witnessed good growth due to economic recovery and high oil and gas prices. The company expects weak economic growth in some advanced economies in the H2 of the financial year 2019. The Chinese market had shown slow growth due to ongoing trade tensions with the US.

Conclusion

The company carries out the development, engineering, construction and facilities operation and maintenance, and provides training services for the oil and gas industry. Despite week Top-line performance, the company had reported a good Bottom-line performance. The company had reduced its total expenditure in the first quarter of the financial year 2019.
 
New contracts, increasing demand for oil and petroleum products and upstream investment forecast for 2019 could provide new growth opportunities to the company.  The company’s operations may be impacted negatively due to ongoing uncertainly created by Brexit as it will impact the company’s supply chain. The fluctuation in oil and gas prices, risks associated with international operations and stiff competition could also affect its operations.
 
Based on decent prospects and support from the valuation as done using the above two methods, we have given a “BUY” recommendation at the closing price of GBX 2,565.5 (as on 23rd July 2019) with high single-digit upside potential based on 1.50x NTM Price/Book (approx.) on FY19E book value per share (approx.) and 6.20x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.80141 GBP
*The buy recommendation is also valid for the current price as covered in the report (as on July-24-19).

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