| Latest revision |
Your text |
| Line 38: |
Line 38: |
| | [[Shell US]]}}|website={{URL|https://www.shell.com}}|footnotes=References: <ref> {{cite web |title=Shell begins trading under simpler, single-line share structure |url=https://www.reuters.com/business/energy/shell-begin-trading-under-simpler-single-line-share-structure-2022-01-31/ </ref>}} | | | [[Shell US]]}}|website={{URL|https://www.shell.com}}|footnotes=References: <ref> {{cite web |title=Shell begins trading under simpler, single-line share structure |url=https://www.reuters.com/business/energy/shell-begin-trading-under-simpler-single-line-share-structure-2022-01-31/ </ref>}} |
|
| |
|
| Shell plc, an energy and petrochemical multinational, operates across a broad geographical footprint that spans Europe, Asia, Oceania, Africa, and the Americas. The company is segmented into Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions divisions. Each segment oversees distinct operations ranging from the management of liquefied natural gas (LNG) activities to the exploration and extraction of oil and gas reserves. | | Shell plc operates as an energy and petrochemical company Europe, Asia, Oceania, Africa, the United States, and Rest of the Americas. The company operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. It explores for and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; produces gas-to-liquids fuels and other products; and operates upstream and midstream infrastructure necessary to deliver gas to market. The company also markets and trades natural gas, liquefied natural gas (LNG), crude oil, electricity, carbon-emission rights; and markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels. In addition, it trades in and refines crude oil and other feed stocks, such ase low-carbon fuels, lubricants, bitumen, sulphur, gasoline, diesel, heating oil, aviation fuel, and marine fuel; produces and sells petrochemicals for industrial use; and manages oil sands activities. Further, the company produces base chemicals comprising ethylene, propylene, and aromatics, as well as intermediate chemicals, such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide, and ethylene glycol. Additionally, it generates electricity through wind and solar resources; produces and sells hydrogen; and provides electric vehicle charging services, as well as electricity storage. The company was formerly known as Royal Dutch Shell plc and changed its name to Shell plc in January 2022. Shell plc was founded in 1907 and is headquartered in London, the United Kingdom. |
| | |
| The Integrated Gas division handles the company's LNG business, while the Upstream division is responsible for discovering and tapping into new oil and gas reserves. In contrast, the Marketing, Chemicals, and Products division engages in oil product and chemical activities, inclusive of commodity trading. The Renewables and Energy Solutions division focuses on the production of clean energy and sustainable solutions.
| |
| | |
| Shell's vast scope of activities includes oil and gas exploration, extraction, and marketing, operation of upstream and midstream infrastructure, gas-to-liquids fuel production, and commodity trading, particularly in natural gas, LNG, crude oil, electricity, and carbon-emission rights. The company also engages in the refinement of crude oil and other feedstocks into products such as low-carbon fuels, lubricants, and a variety of petrochemicals for industrial usage. It manages oil sands activities, generates electricity through renewable resources like wind and solar, and offers services like electric vehicle charging and electricity storage.
| |
| | |
| The company's commitment to sustainability is visible in its push towards hydrogen production, carbon capture technology, and the marketing of LNG as a fuel for heavy-duty vehicles and marine vessels, signifying a strategic alignment with the global move towards a net-zero emissions future. | |
| | |
| Originally founded in 1907 as Royal Dutch Shell plc, the company rebranded to Shell plc in January 2022. Today, Shell is headquartered in London, UK, and employs a diverse workforce of around 93,000 individuals. Shell prides itself on its active role in local communities and adopts a proactive approach to safeguard these environments for future generations.
| |
| | |
| == Industry Overview & Market Opportunity == | | == Industry Overview & Market Opportunity == |
| The energy market plays a crucial role in the global economy, and its dynamics are shaped by a combination of factors, including technological advancements, policy changes, environmental concerns, and geopolitical developments.
| |
|
| |
| The global energy outlook for 2023 indicates a significant focus on renewable energy growth, driven by the aim to enhance energy security and reduce carbon emissions. Renewable energy investments have been increasing rapidly compared to investments in fossil fuels, reflecting the shift towards cleaner energy sources.
| |
|
| |
| Investment with clean energy segment has also experienced substantial growth, outpacing investments in fossil fuels. This trend is driven by improved economics, policy support, climate goals, and a focus on energy security. In 2023, it is estimated that over USD 1.7 trillion will be invested in clean energy, covering areas such as renewable power, nuclear energy, grids, storage, low-emission fuels, and efficiency improvements.
| |
|
| |
|
| Oil Market: The oil market continues to be influenced by various factors. China's increasing demand for oil, driven by economic rebound and the easing of Covid-19 restrictions, is expected to have a significant impact on global oil prices. Other factors, including geopolitical tensions between Russia and Ukraine, and supply-demand dynamics, will continue to shape the oil market in 2023.
| | * Analyse the current energy market, including trends, demand-supply dynamics, and regulatory factors. |
| | * Identify the specific segment that Shell operates in. |
| | * Analyse the growth potential of the market segment. |
|
| |
|
| Renewable Energy Market: The electricity market is experiencing a notable shift from fossil fuels to renewable energy sources. Investments in solar and wind power are increasing, driven by the need to reduce carbon emissions and the declining costs of renewable technologies. This transition is crucial for achieving climate goals and ensuring a sustainable energy future.
| | == Company Overview == |
|
| |
|
| Electric Technological Advancements: The growing electrification trend, driven by advancements in electric vehicles, heat pumps, and other technologies, is reshaping energy demand patterns. Energy intensity on the demand side is expected to decrease due to technological advancements and increased energy efficiency measures.
| | * Overview of the company, including its history, business model, and key operations. |
| | * Key financial metrics such as revenue growth, profit margins, return on investment, and cash flow generation. |
| | * Provide an overview of Shell, including its history, business model, and key operations. |
| | * Financial Analysis and assess the Shell's financial performance. |
|
| |
|
| It is important to note that the energy market is dynamic and subject to various influences and uncertainties. Ongoing developments in technology, geopolitical events and their corresponding policies, and environmental concerns will continue to influence the future of the energy market, driving the transition towards more sustainable and cleaner energy sources.
| |
|
| |
|
| == Operations == | | == Operations == |
| Shell operates in various segments of the energy industry, engaging in exploration, production, refining, and marketing activities. An overview of Shell's key operations is explained below: | | Shell operates in various segments of the energy industry, engaging in exploration, production, refining, and marketing activities. An overview of Shell's key operations is explained below: |
|
| |
|
| # Upstream Operations: Shell's upstream operations involve the exploration, development, and production of oil and natural gas reserves. The company actively explores for hydrocarbon resources worldwide, including both conventional and unconventional sources. Shell's work involves in various regions, such as North America, Europe, Africa, Asia, and the Middle East. | | # Upstream Operations: Shell's upstream operations involve the exploration, development, and production of oil and natural gas reserves. The company actively explores for hydrocarbon resources worldwide, including both conventional and unconventional sources. Shell has significant upstream activities in various regions, such as North America, Europe, Africa, Asia, and the Middle East. The company employs advanced technologies and techniques to maximize the recovery of hydrocarbons while ensuring operational safety and environmental stewardship. |
| # Integrated Gas Operations: Shell's integrated gas segment focuses on the liquefied natural gas (LNG) business. The company is a leading producer and marketer of LNG, providing cleaner-burning natural gas to customers globally. Shell has expertise in the entire LNG value chain, including production, liquefaction, transportation, regasification, and marketing. The company operates LNG facilities in different parts of the world, supplying LNG to power generation, industrial, and residential customers. | | # Integrated Gas Operations: Shell's integrated gas segment focuses on the liquefied natural gas (LNG) business. The company is a leading producer and marketer of LNG, providing cleaner-burning natural gas to customers globally. Shell has expertise in the entire LNG value chain, including production, liquefaction, transportation, regasification, and marketing. The company operates LNG facilities in different parts of the world, supplying LNG to power generation, industrial, and residential customers. |
| # Refining and Chemicals Operations: Shell is involved in refining crude oil into petroleum products and manufacturing petrochemicals. The company operates refineries globally, processing crude oil to produce gasoline, diesel, jet fuel, and other refined products. Shell's petrochemical plants produce a wide range of chemicals used in various industries, including plastics, coatings, and detergents. The refining and chemicals operations are integrated to optimize production and maximize value from hydrocarbon resources. | | # Refining and Chemicals Operations: Shell is involved in refining crude oil into petroleum products and manufacturing petrochemicals. The company operates refineries globally, processing crude oil to produce gasoline, diesel, jet fuel, and other refined products. Shell's petrochemical plants produce a wide range of chemicals used in various industries, including plastics, coatings, and detergents. The refining and chemicals operations are integrated to optimize production and maximize value from hydrocarbon resources. |
| Line 77: |
Line 67: |
|
| |
|
| * Compare Shell's financial performance to industry benchmarks and competitors. | | * Compare Shell's financial performance to industry benchmarks and competitors. |
| * Globally, Shell's key competitors are other Integrated Oil Companies such as BP, Chevron and Exxon Mobil. Amid the global pursuit of Net Zero, it is vital to assess if Shell is as competitive as its likes when it comes to balancing return and emission. Shell delivered record profits for 2022, and also reduced carbon emissions from its operations by over 30%. <ref name=":0" /> | | * Globally, Shell's key competitors are other Integrated Oil Companies such as BP, Chevron and Exxon Mobil |
| * Over the last few decades National Oil Companies (NOCs) having increased their size and now the major NOCs lead the production of Shell. | | * Over the last few decades National Oil Companies (NOCs) having increased their size and now the major NOCs lead the production of Shell |
| * The three largest NOCs — Saudi Aramco, Gazprom and Iran — produce more than 25 percent of global hydrocarbon output.<ref name=":2">https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/08/are-national-oil-companies-the-new-international-oil-companies.pdf</ref> | | * The three largest NOCs — Saudi Aramco, Gazprom and Iran — produce more than 25 percent of global hydrocarbon output.<ref name=":2">https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2018/08/are-national-oil-companies-the-new-international-oil-companies.pdf</ref> |
| * Furthermore, NOCs are now estimated to control over 85 percent of global oil reserves and much of the global oil and gas infrastructure.<ref name=":2" /> | | * Furthermore, NOCs are now estimated to control over 85 percent of global oil reserves and much of the global oil and gas infrastructure.<ref name=":2" /> |
| * A major portion of the predicted undiscovered reserves in the world are in the countries where NOCs hace direct and priveleged access.<ref name=":2" /> | | * A major portion of the predicted undiscovered reserves in the world are in the countries where NOCs hace direct and priveleged access.<ref name=":2" /> |
| * In line with IOCs, the NOCs are looking for diversification of their existing portfolios away from hydrocarbons and into alternative energy. For instance, Saudi Aramco recently announced new plans to diversify its energy mix and produce 10 percent of its power from renewable sources in the next 6 years.<ref name=":2" /> | | * In line with IOCs, the NOCs are looking for diversification of their existing portfolios away from hydrocarbons and into alternative energy. For instance, Saudi Aramco recently announced new plans to diversify its energy mix and produce 10 percent of its power from renewable sources in the next 6 years.<ref name=":2" /> |
| To delve further, the business of Shell can be divided into a few segments: integrated gas, upstream, chemicals and products, marketing, renewables and energy solutions and corporate (listed in descending order of carrying value).<ref>https://reports.shell.com/annual-report/2022/_assets/downloads/shell-annual-report-2022.pdf<nowiki/>Page 253</ref> Below elaborates the competition in the three sectors with the largest business volume.
| |
|
| |
| '''Integrated Gas'''
| |
|
| |
| Shell competes primarily with global energy companies, including BP, Chevron, Total, and ExxonMobil. This sector's competitiveness can be gauged based on reserve holdings and reliability of supply. In terms of volume of oil reserve, Shell has around 9 billion barrels of oil and natural gas<ref>https://reports.shell.com/annual-report/2022/strategic-report/segments/oil-and-gas-information/reserves.html</ref>which ranked 5th among other supermajor companies, where Exxon Mobil, the one owning most oil reserve has around 19 billion barrels.<ref><nowiki>https://www.statista.com/statistics/215897/proved-oil-reserves-by-leading-world-gas-and-oil-companies/</nowiki></ref> On the sources of supply, Shell obtains oil and natural gas across the global and has a rather decentralised supply, with more production for sale in Asia and America, which should prove to be reasonably resilient. Note since the energy transition is imminent, how Shell adapts the paradigm shift ot renewable energies will also be vital to its business.
| |
|
| |
| '''Upstream'''
| |
|
| |
| Shell’s Upstream division competes in a volatile market against both multinational energy corporations and independent oil and gas firms. Competition in this sector is based on production costs, and operational efficiency. It ranked 7th in production among other NOCs and IOCs.<ref>https://www.statista.com/statistics/280705/leading-oil-companies-worldwide-based-on-daily-oil-production/</ref>
| |
|
| |
| '''Chemicals and Products'''
| |
|
| |
| Shell again faces competition from other major energy corporations such as BP and Total, as well as specialty chemical companies like BASF and Dow. These competitors engage in the production of a wide variety of petrochemical products from plastics and fertilizers to solvents and detergents. The competitiveness in this sector is often dictated by operational efficiency, technological innovations, product quality, and the ability to adapt to changing market trends.
| |
|
| |
|
| == Risk == | | == Risk == |
| Line 575: |
Line 552: |
| |- | | |- |
| |Beta | | |Beta |
| |1.21<ref>https://markets.ft.com/data/equities/tearsheet/summary?s=SHEL:LSE</ref> | | | 1.21<ref>https://markets.ft.com/data/equities/tearsheet/summary?s=SHEL:LSE</ref> |
| |- | | |- |
| |Market Rate of Return | | |Market Rate of Return |
| Line 590: |
Line 567: |
| |- | | |- |
| |Shares Outstanding | | |Shares Outstanding |
| |7,345.31<ref name=":1">Shell annual report 2022 (pg.241) - https://reports.shell.com/annual-report/2022/_assets/downloads/shell-annual-report-2022.pdf</ref> | | | 7,345.31<ref name=":1">Shell annual report 2022 (pg.241) - https://reports.shell.com/annual-report/2022/_assets/downloads/shell-annual-report-2022.pdf</ref> |
| |- | | |- |
| |Share Price | | |Share Price |
| |30.28<ref>Share price in USD as of 04/07/2023.</ref> | | | 30.28<ref>Share price in USD as of 04/07/2023.</ref> |
| |- | | |- |
| | '''Equity''' | | | '''Equity''' |
| | '''222,416.06''' | | | ''' 222,416.06''' |
| |- | | |- |
| |Short Term Debt | | |Short Term Debt |
| |9,044.4 | | | 88,358.00 |
| |- | | |- |
| |Long Term Debt | | |Long Term Debt |
| |76,098.00 | | | 78,226.00 |
| |- | | |- |
| |Cash and Cash Equivalents | | |Cash and Cash Equivalents |
| |42,074.00 | | | 40,246.00 |
| |- | | |- |
| | '''Debt''' | | | '''Debt''' |
| | '''43,068.00''' | | | ''' 126,338.00''' |
| |- | | |- |
| |E/D+E | | |E/D+E |
| |83.8% | | |63.8% |
| |- | | |- |
| |D/D+E | | |D/D+E |
| |16.2% | | |36.2% |
| |- | | |- |
| | '''WACC''' | | | '''WACC''' |
| |'''7.1%''' | | |'''6.0%''' |
| |} | | |} |
| {| class="wikitable" | | {| class="wikitable" |
| Line 859: |
Line 836: |
| | | | | |
| | | | | |
| |''' 1,158,697.87''' | | |''' 1,381,910.32''' |
| |- | | |- |
| |Discount Factor | | |Discount Factor |
| |0.96703846 | | |0.97213908 |
| |0.90296224 | | |0.91754506 |
| |0.84313173 | | |0.86601697 |
| |0.7872656 | | |0.81738263 |
| |0.73510118 | | |0.77147953 |
| |0.68639318 | | |0.72815428 |
| |0.64091259 | | |0.68726212 |
| |0.59844556 | | |0.64866641 |
| |0.5587924 | | |0.612238184 |
| |0.521766671 | | |0.577855716 |
| |- | | |- |
| |'''Present Value of FCF''' | | |'''Present Value of FCF''' |
| | ''' 46,222.55''' | | | ''' 46,466.35''' |
| | ''' 45,914.51''' | | | ''' 46,656.03''' |
| | ''' 45,588.58''' | | | ''' 46,826.00''' |
| | ''' 45,245.97''' | | | ''' 46,976.87''' |
| | ''' 44,887.85''' | | | ''' 47,109.24''' |
| | ''' 44,515.32''' | | | ''' 47,223.69''' |
| | ''' 44,129.44''' | | | ''' 47,320.80''' |
| | ''' 43,731.23''' | | | ''' 47,401.11''' |
| | ''' 43,321.66''' | | | ''' 47,465.16''' |
| | ''' 42,901.63''' | | | ''' 47,513.49''' |
| |- | | |- |
| |'''Present Value of Terminal Value''' | | |'''Present Value of Terminal Value''' |
| Line 895: |
Line 872: |
| | | | | |
| | | | | |
| | ''' 604,569.93''' | | | ''' 798,544.78''' |
| |- | | |- |
| |'''Enterprise Value''' | | |'''Enterprise Value''' |
| Line 907: |
Line 884: |
| | | | | |
| | | | | |
| |''' 1,051,028.68''' | | |''' 1,269,503.51''' |
| |- | | |- |
| |'''Equity Value''' | | |'''Equity Value''' |
| Line 919: |
Line 896: |
| | | | | |
| | | | | |
| |''' 1,050,034.68''' | | |''' 1,183,411.51''' |
| |- | | |- |
| |'''Share Price''' | | |'''Share Price''' |
| Line 931: |
Line 908: |
| | | | | |
| | | | | |
| | '''$ 142.95''' | | | '''$ 161.11''' |
| |} | | |} |
| The DCF valuation shows that Shell stock is undervalued, based on yearly revenue growth of 4.2%, and a terminal growth rate of 0%. The model reflects Shell managements targets of 6% free cash flow growth per year, as well as expected revenue of $4-5 billion in 2025.
| |
|
| |
| '''Shell Targets'''
| |
|
| |
| At the latest Shell capital markets day on the 14/06/2023, Shell CEO Wael Sawan announced that a minimum of $5 billion in share buy-backs would take place in the second half of the year, a strong sign that Shell management believes that their company is undervalued. The company aims to grow free cash flow by a minimum rate of 6% per year through to 2030.
| |
|
| |
| Furthermore, it was announced that Shell would sustain their production of oil at 1.4 million barrels per day throughout the decade, as well as growing their integrated gas portfolio through an extra 11 million tons of storage per year, which will come into effect past 2025. For context this value is 1/3 of Shell's current LNG capacity. Alongside this, Shell has set strict targets of reducing structural cost by $2-3 billion by the end of 2025, as well as a capital spend reduction to a total of $22-25 billion per year for 2024/2025.
| |
|
| |
| Shell will have a break even price of $30 per barrel on projects coming online between 2023-2025, well below the forecast crude oil prices.
| |
|
| |
| '''ESG Factors'''
| |
|
| |
| Liquefied Natural Gas (LNG) makes up a majority of Shell's gas portfolio, although a non-renewable source of energy, it produces 50% less carbon emissions than coal when used to produce electricity. Shell aims to phase out coal, and replace it with the lower carbon alternative, LNG. Shell also has targets to have net zero methane emissions by 2030, and to eliminate routine flaring by 2025, faster than the world bank's 2030 deadline.
| |
|
| |
| Shell decreased carbon emissions by 30% during the period 2016-2022, in contrast, global carbon emissions increased by 4%. Shell has made strong progress on it's aims to be carbon neutral by 2050, including announcing up to $15 billion in low carbon investments, such as $1 billion a year in carbon capture and storage in 2024-2025.
| |
|
| |
| '''Relative Valuation'''
| |
|
| |
| # By Stock Analysis, Shell plc (NYSE: SHEL) has a '''market cap''' of $207.49 billion and an '''enterprise value''' of $251.22 billion. The stock's '''trailing PE ratio''' is 5.12, and the '''forward PE ratio''' is 5.31. Shell plc has a '''return on equity''' of 23.30%, the '''operating margin''' for Shell plc is 17.61%.
| |
| # From report by Fidelity, The market cap for Shell is $200.53 billion, with an enterprise value of $243.60 billion. The trailing P/E ratio is 5.05, and the forward P/E ratio is 6.72.
| |
| # Under the Base Case scenario, the relative value of one Shell plc stock is $257.89, indicating that Shell is undervalued by 76% compared to the current market price.
| |
| # According to Simply Wall St, Shell plc is currently priced below fair value and significantly below fair value. The enterprise value/revenue ratio is 0.6x, the enterprise value/EBITDA ratio is 3.1x, and the PEG ratio is -0.3x.
| |
| # Under the base case scenario, the relative value of one Shell PLC stock is 9,972.64 GBX. Compared to the current market price of 2,352 GBX, Shell PLC is undervalued by 76%.
| |
|
| |
| Based on these sources, it appears that Shell plc is considered undervalued in relative valuation compared to the current market price.
| |
|
| |
| Utilising comparable approaches to those employed for Shell's valuation, we've performed a relative valuation analysis between ExxonMobil Corporation (XOM) and Shell plc. Here are our findings:
| |
|
| |
| '''Market Capitalization and Enterprise Value:''' Shell plc's market capitalization oscillates between $200.53 billion and $207.49 billion, with its enterprise value varying between $243.60 billion and $251.22 billion. In comparison, Exxon Mobil commands a solid market cap of $428.44 billion and an enterprise value of $437.23 billion.
| |
|
| |
| '''Trailing and Forward Price-to-Earnings (P/E) Ratios:''' Shell plc's trailing P/E ratio fluctuates between 5.05 and 5.12, with a forward P/E ratio between 5.31 and 6.72. Meanwhile, Exxon Mobil displays a trailing P/E ratio of 7.17 and a forward P/E ratio of 10.93.
| |
|
| |
| '''Return on Equity (ROE) and Operating Margin:''' Shell plc boasts a ROE of 23.30% and an operating margin of 17.61%. Unfortunately, corresponding data for Exxon Mobil is not available.
| |
|
| |
| In the US market, Exxon Mobil's valuation is approximately six times its cash flow, a stark contrast to Shell's, which is valued about three times its cash flow. Our analysis suggests that ExxonMobil is undervalued by around 2%, a value significantly lower than Shell's undervaluation. This implies that, compared to its competitors, Shell may be undervalued. This finding is consistent with the results of our Discounted Cash Flow (DCF) analysis.
| |
|
| |
|
| == References and notes == | | == References and notes == |
