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City analysts react to Royal Dutch Shell’s first quarter

Published: 13:11 26 Apr 2018 BST

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Shell shares were down 52.9p or 2.04%

Royal Dutch Shell Plc (LON:RDSB) shares backed off on Thursday following its first quarter financial results that showed a boost from better oil prices but,didn’t wow investors with its free cash flow.

Shell quarterly earnings (when reported as CCS earnings attributable to shareholders) were up 69% year-on-year at US$5.7bn versus US$3.38bn in the comparative period of 2017 and US$3.08bn in the preceding three months.

READ: Shell first quarter unsurprisingly boosted by higher crude prices

The upstream business, which is most directly impacted by the price of crude, saw earnings of US$1.55bn for the quarter, up from US$540mln in the first quarter of last year.

Cash flow from operating activities rose to US$9.42bn, compared to the US$7.2bn generating the preceding quarter. The oil and gas major confirmed it distributed US$4bn as total dividends to shareholders, and confirm dividend per share was retained at 47 cents per share for the quarter.

Shell shares were down 52.9p or 2.04% trading at 2,535p.

City analysts had mixed views.

Free cash flow to grow beyond dividend needs - RBC

Royal Bank of Canada, which rates Shell as a ‘preferred’ super-majors, reckons the oiler will grow free cash flow above and beyond the group’s dividend commitments over the next few years.

“We also remain positive on LNG over the next few years, where Shell is the market leader,” said analyst Biraj Borkhataria.

He added: “Shell has reiterated its commitments to being at the lower end of its capex framework ($25-30bn), as well as its intention to buyback $25-30bn shares over 2018-20.

“While this cash flow print may not necessarily support the latter intention, we would expect cash flow growth through the year supported by the current macro environment.”

Making portfolio progress - Jefferies

Jefferies highlighted the progress Shell is making with its portfolio - it has reached final investment decision for two projects, and had generated total divestments of US$1.3bn.

Analyst Jason Gammel, in a note, said there was little change to the group’s financial leverage and his investment thesis remains unchanged even though the results marked a second consecutive quarter of “somewhat disappointing” cash flow.

“We believe the growth in the deep water, shales and chemicals businesses will lead to cash flow from operations (CFFO) in excess of $55b by 2020 in a $65 nominal Brent environment,” he said.

“This growth, combined with strong capital discipline, will lead to free cash flow in excess of $30b, an 11% yield based on the current market cap.”

Much improved - Hargreaves Lansdown

“Shell’s position is much improved, even if their view of the next few months hardly sets the pulse racing,” said Laith Khalaf, analyst at Hargreaves Lansdown.

“The group are confident in their future cash flows and expect to repurchase $25bn of shares over the next couple of years, largely funded through divesting non-core assets.

“With the yield on the stock currently around 5.2%, these repurchases will improve the cash cover of the dividend on the remaining shares.”

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