Shell PLC's (LSE:SHEL, NYSE:SHEL) third-quarter update offered few surprises but plenty of reassurance. UBS kept its “buy” rating and a price target of 3,050p, noting that the oil major’s numbers were solid across the board, with cash flow and balance sheet trends both pointing the right way.
Adjusted earnings came in better than expected. The company reported underlying earnings before interest, tax, depreciation and amortisation of $14.8 billion, about 3% ahead of consensus.
Upstream operations were the standout, beating forecasts by 5%. Net income of $5.4 billion was 7% higher than expected, helped by a lower tax charge and fewer exploration write-offs.
Cash flow from operations was also strong. Shell generated $12.2 billion once adjusted for working capital movements and current cost of supply effects, about 4% above forecasts.
Capital expenditure was $4.9 billion, slightly below UBS’s estimate. Net debt fell 5% on the quarter to $41.2 billion, aided by a smaller drag from working capital, while gearing edged down to 18.8%.
Investors will be pleased that shareholder returns remain untouched. The dividend stays flat at $0.358 a share and the buyback programme continues at $3.5bn, in line with guidance.
Liquefied natural gas production is expected to rise slightly in the fourth quarter as LNG Canada ramps up, while corporate costs are set to increase modestly.
All told, UBS said the quarter showed Shell’s financial discipline intact and its cash generation comfortably ahead of expectations, even without any change in the pace of returns.