Shares in oil giant Shell (SHEL) fell 2% after the firm posted Q4 earnings which missed analysts’ forecasts. The firm blamed lower crude and LNG prices together with lower trading income and lower chemical margins for the miss.
| Share price: £28.00 (-2%) | PE: 13.6x |
| Market cap: £160bn | Yield: 3.8% |
WEAKER TRADING
For the three months to December, Shell reported net profit of $3.26 billion against a consensus estimate of $3.51 billion. Earnings were down 11% on the previous year and 40% on the previous quarter.
The miss is surprising as Q4 earnings included a non-recurring net gain of $1.2 billion from asset sales. Adjusted EPS came in at 57c against a consensus of 63c.
Underlying operating costs were up on the previous year and the previous quarter at $9.4bn. At the same time, cash capital expenditure was higher than Q3 at $6bn against $4.9bn.
Cash flow from operations was $9.4bn, down 28% on the previous year and 23% on the previous quarter. On the other hand, net debt increased 18% on the year and 11% on the quarter to $45.7bn.
As a result, gearing hit 20.7% against 18.8% in Q3 and 17.7% a year ago. Despite this, the firm maintained its quarterly buyback of $3.5bn, which had been in question.
Shell’s Q4 report isn’t pretty with income going down while spending and gearing goes up. However, all most shareholders are interested in are dividends and buybacks, and on that count the firm has delivered.
The company is buying back $3.5 billion of shares between now and the Q1 results in April. That is the same quarterly trend which has seen the firm buy back a quarter of its shares in five years.
We don’t know if this is an appropriate use of capital, although Shell shares are cheap relative to their history. To us, spending such a high proportion of cash flow on shrinking rather than growing the company is questionable.
Read the press release here: https://www.shell.com/investors.html
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