Morningstar

Shell Earnings: Maintains Repurchase Rate as June Brings Strategic Update

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Securities In This Article
Shell PLC
(SHEL)

No-moat Shell SHEL reported first-quarter results increased to $9.6 billion from $9.1 billion despite lower oil and gas prices thanks to lower operating expenses and stronger chemicals and products trading results. Total production fell to 2,902 mboe/d from 2,962 mboe/d last year because of divestments that offset the benefit of reduced maintenance.

During the quarter, Shell returned $6.3 billion to shareholders in dividends and repurchases, concluding its latest buyback program of $4 billion announced with fourth-quarter results. It plans to maintain the $4 billion rate during the second quarter, a contrast with peer BP, who reduced its second-quarter repurchase amount. As with full-year 2022, through the first quarter, Shell is tracking above the upper end of its shareholder distribution guidance of 20%-30% of operating cash flow, demonstrating management’s confidence in the balance sheet and strong operations.

We think an increase in its payout target (as Total previously did) as well as a modification to its energy transition strategy could be in the cards when Shell updates its new strategic plan in June, the first under new CEO Wael Sawan. Both changes could go toward addressing the valuation gap with U.S. peers.

Our fair value and moat rating are unchanged, leaving shares slightly undervalued.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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