Shell might have posted an eyebrow-raising US$40bn profit in 2022, but that wasn’t enough according to analysts at Royal Bank of Canada (TSX:RY).
“Normalising for ‘mid-cycle’ macro, we believe Shell’s ROCE [return on capital] was a meagre 9% and on a comparable basis lagged many of its peers,” said the Canadian bank.
Indeed, RBC says that an “acceptable” level of profit last year would have been US$48bn and it needs to take action to address the issues, which it identifies as its LNG business and overexposure to Asia in the marketing arm.
“The bottom line is Shell generated $40bn in adjusted earnings last year and we think it could have been closer to US$48bn if the company was firing on all cylinders.
“Thus, the shareholder distributions and/or debt paydown last year could have been even higher.”
On the plus side, RBC welcomes the new tone on ‘upstream’ from chief executive Wael Sawn and expects a renewed emphasis on the longevity of its oil and gas production assets at the capital markets day on 14 June.
"Outperform" with a 2,900p rating is RBC’s rating.
Shares dropped 1.4% to 2,364p