Those investing online in the shares of Royal Dutch Shell might well be buoyed if expectations for a bumper profit to be reported later this week come through. Significant rises in oil and gas prices over 2018 are expected to see Royal Dutch Shell post full-year annual profits of £15 billion ($20 billion) on Thursday when the company publishes its 2018 results to investors. That’s growth of around 20% on the previous year and would represent the strongest profit figures posted by the most valuable company listed on the London Stock Exchange since 2014.
With the Shell share price down over 16% since its recent high of May 2018, how likely is it that it will soar on the good news? In terms of immediate impact, investors probably shouldn’t expect fireworks. It’s not ‘new’ news that the report is expected to be a very strong one and while there may be some share price lift if it is confirmed as meeting or exceeding those expectations it is unlikely to be a surge. However, long term, many analysts are tipping a positive trend for the Shell share price.
But what has contributed to a bumper 2018 and why does Shell look well placed as a share to look at for online investors going forward into the medium term? Royal Dutch Shell’s retail division is expected to have done particularly well on the back of a jump in gas and oil prices. European gas prices rose 53% between the last quarter of 2017 and the same quarter last year. Brent crude prices were also up 15% and benefited from much higher prices earlier in the year while Asian LNG prices showed 3% appreciation.
But it’s at a more structural level than the vagaries of fluctuating energy commodity prices that Royal Dutch Shell looks to be in good health in a way that will reflect in an improving share price trend going forward. The company’s key strengths can be broadly detailed as:
Diversification: the potentially risky 2015 acquisition of LNG giant BG Group now looks to be turning out to have been a masterstroke by Shell’s management. It has turned the group into a leader in the LNG industry. Integrated gas, Shell’s deepwater projects in the Gulf of Mexico and off the coast of Brazil and investments in low carbon ‘new energy’ now look like coming together to form a strong, diversified base that will leave Shell investors less vulnerable to oil price’s influence on share price.
Cost Cutting: a strict programme of cost cutting carried out by Shell’s management in the wake of the 2014 oil price crash means that the company’s break-even point is not as low as $40 a barrel, even for deepwater assets.
P/E and Dividend Yield: for investors with an eye for value-indicator ratios, Shell’s P/E ratio of 10.2 and dividend yield of over 5% at the current share price suggests there is plenty of room for improvement on the company’s current valuation. Shell has a strong record of maintaining dividends even during major oil price slumps.
2019 might be a volatile year for stock markets and those investing online should keep that in mind and not be overly concerned at short term losses. There’s a possibility Shell’s share price could fall again this year even if Thursday’s results are very strong. But trying to time its bottom would be risky. Medium to long term, Shell does appear to be attractively valued at its current share price of 2217.5 GBX.