Down 13% from its 2023 high, Shell’s share price looks a bargain to me

Shell’s (LSE: SHEL) share price has dropped 13% from its March high and looks like a bargain to me.

One of the reasons was that the March peak was the highest price since June 2019. At such a level, many investors would have taken profits on their holdings in the oil and gas giant.

Another reason was the 7 July update ahead of the release of its Q2 results (due 27 July). In it, the company said it expects trading at its gas division to be significantly lower compared to Q1.

It clarified that this was due to seasonal factors, which seems reasonable to me. Gas usage typically drops in Q2 after the chillier Q1. Partly as an adjunct to this, gas price volatility usually falls as well, which crimps financial trading opportunities.

Focus on closing the valuations gap

Major energy companies need to manage the transition to cleaner energy carefully. Otherwise, there will be shortfalls in global energy supplies that will cripple economies. And this is what Shell is focused on doing, it seems to me.

One part of this has been a reaffirmation of its commitment to major oil and gas projects. This is to ensure adequate capital to manage the transition.

CEO Wael Sawan has underlined that the company’s oil production would remain at 1.4m barrels per day until 2030. It will also expand its huge liquefied natural gas business.

This restatement of Shell as primarily an oil and gas giant is in line with its major US rivals. Despite the greener US Presidential Administration of Joe Biden, they have remained unwavering in their commitment to these core businesses.

And Sawan has noted that their valuations are higher than their European peers for this. According to analysts’ estimates, Shell trades at around a 3.4 times ratio of share price to projected 2023 cash flows. US-based Chevron and Exxon trade at around 7.1 and 7.5 times, respectively.

The other part of Shell’s strategy is to achieve net zero emissions by 2050. However, it will focus on green projects that perform well and those that do not will be offloaded. This will also reduce costs.

Committed to rewarding shareholders

These plans should augment the company’s already strong foundations. In Q1 it made $9.6bn in earnings — compared to $9.1bn in the same quarter the previous year.

After its 2022 results, Shell increased the Q4 dividend per share by 15% to 28.75 cents, bringing the annual total to $1.04. It also announced a share buyback of $4bn to be completed by the Q1 results announcement.

Another $4bn of buybacks are planned for completion by the time of the Q2 results announcement. This would bring total shareholder distributions to around $12bn for the first half of this year.

For me, the risks in the Shell share price are that lobbying by the anti-oil community may affect its operations. Another risk is that it may be pressured by the government to speed up its transition to cleaner energy.

I already have holdings in the company, but if I did not I would buy it now. There is no reason why it will not recoup all its losses and then extend these gains, in my view. The dividends and buybacks are additional great rewards for holding the stock.

The post Down 13% from its 2023 high, Shell’s share price looks a bargain to me appeared first on The Motley Fool UK.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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More reading

How much passive income could I generate from a £10k investment in big oil?
Will a renewed focus on oil and gas fuel Shell share price gains?
3 FTSE 100 stocks I wish I’d bought during the 2020 stock market crash!
Should I buy this dirt-cheap UK share following its 15% dividend hike?
Should I buy Shell stock after its 15% dividend boost?

Simon Watkins has positions in Shell Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shell’s (LSE: SHEL) share price has dropped 13% from its March high and looks like a bargain to me.

One of the reasons was that the March peak was the highest price since June 2019. At such a level, many investors would have taken profits on their holdings in the oil and gas giant.

Another reason was the 7 July update ahead of the release of its Q2 results (due 27 July). In it, the company said it expects trading at its gas division to be significantly lower compared to Q1.

It clarified that this was due to seasonal factors, which seems reasonable to me. Gas usage typically drops in Q2 after the chillier Q1. Partly as an adjunct to this, gas price volatility usually falls as well, which crimps financial trading opportunities.

Focus on closing the valuations gap

Major energy companies need to manage the transition to cleaner energy carefully. Otherwise, there will be shortfalls in global energy supplies that will cripple economies. And this is what Shell is focused on doing, it seems to me.

One part of this has been a reaffirmation of its commitment to major oil and gas projects. This is to ensure adequate capital to manage the transition.

CEO Wael Sawan has underlined that the company’s oil production would remain at 1.4m barrels per day until 2030. It will also expand its huge liquefied natural gas business.

This restatement of Shell as primarily an oil and gas giant is in line with its major US rivals. Despite the greener US Presidential Administration of Joe Biden, they have remained unwavering in their commitment to these core businesses.

And Sawan has noted that their valuations are higher than their European peers for this. According to analysts’ estimates, Shell trades at around a 3.4 times ratio of share price to projected 2023 cash flows. US-based Chevron and Exxon trade at around 7.1 and 7.5 times, respectively.

The other part of Shell’s strategy is to achieve net zero emissions by 2050. However, it will focus on green projects that perform well and those that do not will be offloaded. This will also reduce costs.

Committed to rewarding shareholders

These plans should augment the company’s already strong foundations. In Q1 it made $9.6bn in earnings — compared to $9.1bn in the same quarter the previous year.

After its 2022 results, Shell increased the Q4 dividend per share by 15% to 28.75 cents, bringing the annual total to $1.04. It also announced a share buyback of $4bn to be completed by the Q1 results announcement.

Another $4bn of buybacks are planned for completion by the time of the Q2 results announcement. This would bring total shareholder distributions to around $12bn for the first half of this year.

For me, the risks in the Shell share price are that lobbying by the anti-oil community may affect its operations. Another risk is that it may be pressured by the government to speed up its transition to cleaner energy.

I already have holdings in the company, but if I did not I would buy it now. There is no reason why it will not recoup all its losses and then extend these gains, in my view. The dividends and buybacks are additional great rewards for holding the stock.

The post Down 13% from its 2023 high, Shell’s share price looks a bargain to me appeared first on The Motley Fool UK.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()

More reading

How much passive income could I generate from a £10k investment in big oil?
Will a renewed focus on oil and gas fuel Shell share price gains?
3 FTSE 100 stocks I wish I’d bought during the 2020 stock market crash!
Should I buy this dirt-cheap UK share following its 15% dividend hike?
Should I buy Shell stock after its 15% dividend boost?

Simon Watkins has positions in Shell Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

 

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