Shell plc

Shell plc

Formerly	Royal Dutch Shell plc (2005-2022)
Type	Public
Traded as	LSE:SHEL EuronextAmsterdam:SHELL NYSE:SHEL FTSE 100 Component AEX Component
ISIN	GB00BP6MXD84
Industry	Energy Petroleum
Predecessor	Royal Dutch Petroleum Company (1890) The "Shell" Transport and Trading Company (1897)
Founded	April 1907 (1907-04) (original amalgamation) July 20, 2005 (2005-07-20) in Shell Centre, London (current entity)
Founder	Marcus & Samuel Samuel (Shell Transport and Trading Co.) Jean B.A. Kessler Henri Deterding Hugo Loudon (Royal Dutch Petroleum Co.)
Headquarters	Shell Centre, London , England
Area served	Worldwide
Key people	Wael Sawab (CEO) Andrew Mackenzie (Chairperson)
Products	LNG Lubricants Natural gas Petrochemicals Petroleum
Brands	Jiffy Lube Pennzoil Quaker State Shell Advance Shell Helix Shell Nautilus Shell Rimula Shell Rotella Shell V-Power
Revenue	US$381.3 billion (2022)
Operating income	US$68.0 billion (2022)
Net income	US$42.9 billion (2022)
Total assets	US$443.0 billion (2022)
Total equity	US$192.6 billion (2022)
Number of employees	86,000 (2022)
Divisions	Shell Chemicals Shell Gas & Power
Subsidiaries	Shell Australia Shell Canada Shell Chile Shell Hong Kong Shell India Shell Italia Shell Nigeria Shell Oman Shell Pakistan Shell Philippines Shell South Africa Shell Tunisia Shell US
Website	https://www.shell.com
Footnotes / references References:

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.

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

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.

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.

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.

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

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:

1. 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.
2. 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.
3. 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.
4. Marketing and Retail: Shell has an extensive retail network, operating a global chain of service stations where customers can purchase fuels, lubricants, and convenience store items. The company's retail operations span multiple countries, and Shell-branded service stations are recognized worldwide. Shell's marketing activities also include the distribution of aviation fuels, marine fuels, and related services to the transportation sector.
5. Renewable Energy and Low-Carbon Initiatives: In line with the global transition to a low-carbon economy, Shell has been actively expanding its presence in renewable energy and low-carbon technologies. The company has made investments in renewable power generation, including wind and solar energy projects. Shell is also involved in electric vehicle charging infrastructure, biofuels production, and energy storage solutions. These initiatives reflect Shell's commitment to reducing carbon emissions and participating in the energy transition.

Shell's operations are characterized by a focus on technological innovation, operational efficiency, and sustainable practices. The company seeks to balance energy production with environmental responsibility, aiming to provide reliable and cleaner energy solutions to meet the world's growing energy demand.

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%.
• 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.
• Furthermore, NOCs are now estimated to control over 85 percent of global oil reserves and much of the global oil and gas infrastructure.
• A major portion of the predicted undiscovered reserves in the world are in the countries where NOCs hace direct and priveleged access.
• 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.

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). 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 gaswhich ranked 5th among other supermajor companies, where Exxon Mobil, the one owning most oil reserve has around 19 billion barrels. 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.

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

Strategic risks

The company is exposed to macroeconomic risks including fluctuating prices of crude oil, natural gas, oil products and chemicals.

The company's ability to deliver competitive returns and pursue commercial opportunities depends in part on the accuracy of its price assumptions.

Shell's ability to achieve its strategic objectives depends on how it reacts to competitive forces.

Rising concerns about climate change and effects of the energy transition could continue to lead to a fall in demand and potentially lower prices for fossil fuels. Climate change could also have a physical impact on its assets and supply chains. This risk may also lead to additional legal and/or regulatory measures, resulting in project delays or cancellations, potential additional litigation, operational restrictions and additional compliance obligations.

Investments in the company's low-carbon products and services may not achieve expected returns.

Shell operates in more than 70 countries that have differing degrees of political, legal and fiscal stability. This exposes the company to a wide range of political developments that could result in changes to contractual terms, laws and regulations. Shell and its joint arrangements and associates also face the risk of litigation and disputes worldwide.

The increasing adoption of renewable energy sources and policies promoting decarbonization may reduce the demand for fossil fuels, affecting Shell's traditional business and requiring a strategic shift towards cleaner energy solutions.

Operational risks

Russia’s invasion of Ukraine has affected the safety and security of its people and operations in these and neighbouring countries. The resulting sanctions and export controls and the evolving geopolitical situation have caused wide-ranging challenges to its operations which could continue in the medium to longer term.

The estimation of proved oil and gas reserves involves subjective judgements based on available information and the application of complex rules. This means subsequent downward adjustments are possible.

Shell's future hydrocarbon production depends on the delivery of large and integrated projects and its ability to replace proved oil and gas reserves.

The nature of Shell's operations exposes it, and the communities in which it works, to a wide range of health, safety, security and environment risks.

A further erosion of the business and operating environment in Nigeria could have a material adverse effect on the company.

An erosion of Shell's business reputation could have a material adverse effect on its brand, its ability to secure new resources or access capital markets, and on its licence to operate.

Shell relies heavily on information technology systems in its operations.

Shell's business exposes it to risks of social instability, criminality, civil unrest, terrorism, piracy, cyber disruption and acts of war that could have a material adverse effect on the company operations.

Production from the Groningen field in the Netherlands causes earthquakes that affect local communities.

Shell is exposed to treasury and trading risks, including liquidity risk, interest rate risk, foreign exchange risk and credit risk. The company is affected by the global macroeconomic environment and the conditions of financial and commodity markets.

The company's future performance depends on the successful development and deployment of new technologies that provide new products and solutions.

Shell has substantial pension commitments, the funding of which is subject to capital market risks and other factors.

The company mainly self-insure its hazard risk exposures. Consequently, the company could incur significant financial losses from different types of risks that are not insured with third-party insurers.

Many of the company's major projects and operations are conducted in joint arrangements or with associates. This could reduce Shell's degree of control and its ability to identify and manage risks.

Shell undertakes large-scale projects, such as oil and gas field development or refinery expansions. Delays or cost overruns in these projects can impact profitability and investor confidence.

Conduct and culture risks

Shell is exposed to regulatory and conduct risk in its trading operations.

Violations of antitrust and competition laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of anti-bribery, tax-evasion and anti-money laundering laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of data protection laws carry fines and exposes the company and/or its employees to criminal sanctions and civil suits.

Violations of trade compliance laws and regulations, including sanctions, carry fines and exposes the company and its employees to criminal proceedings and civil suits.

As a multinational company operating in multiple jurisdictions and with multiple governments, Shell must comply with a multitude of anti-corruption laws, such as the Foreign Corrupt Practices Act (FCPA) in the US and the UK Bribery Act. Non-compliance or unethical practices can lead to significant legal and reputational risks, which can have long lasting effects on the company. The increase in regulation of greenhouse gas emissions worldwide is an important policy that Shell must follow closely.

Operating in dangerous sectors such as the petroleum industry means that Shell may face lawsuits or regulatory investigations focused on different aspects of its business/operations, including environmental impact, safety incidents, or antitrust violations. This can result in financial penalties, damage in reputation and disruptions in worldwide operations.

The recent incidents in its Nigeria-based operation where there is not only added such as: security issues surrounding the safety of its people, host communities and operations; sabotage and theft; and the company's ability to enforce existing contractual rights. Further, the risks include litigation; limited infrastructure; potential legislation that could increase the company's taxes or costs of operations; the impact of lower oil and gas prices on the government budget; and regional instability created by militant activities. Moreover, the Nigerian government is contemplating new legislation to govern the petroleum industry which, if passed into law, could likely have a significant adverse impact on Shell's existing and future activities in Nigeria.

Other risks

The company’s Articles of Association determine the jurisdiction for shareholder disputes. This could limit shareholder remedies.

Valuation

The following is an absolute valuation of Shell plc, by using a 10 year discounted cash flow (DCF) model.

Financials

Units ($m)	2017	2018	2019	2020	2021	2022
Total Revenue	305,179.00	388,379.00	344,877.00	180,543.00	261,504.00	381,314.00
% Growth		27.3%	-11.2%	-47.7%	44.8%	45.8%
Purchases	-    223,447.00	- 294,399.00	- 252,983.00	- 117,093.00	-  174,912.00	-  258,488.00
Production and Manufacturing Expenses	-      26,652.00	-   26,970.00	-   26,438.00	-   24,001.00	-    23,822.00	-    25,518.00
Selling, Distribution and Admin Expenses	-      10,509.00	-   11,360.00	-   10,493.00	-    9,881.00	-    11,328.00	-    12,883.00
R&D Expenses	-           922.00	-       986.00	-       962.00	-       907.00	-         815.00	-      1,075.00
Exploration Expenses	-        1,945.00	-    1,340.00	-    2,354.00	-    1,747.00	-      1,423.00	-      1,712.00
EBIT	41,704.00	53,324.00	51,647.00	26,914.00	49,204.00	81,638.00
Depreciation & Amortisation	26,223.00	22,135.00	28,701.00	52,444.00	26,921.00	18,529.00
CapEx	-      20,845.00	-   23,011.00	-   22,971.00	-   16,585.00	-    19,000.00	-    22,600.00
Current Assets	95,404.00	97,482.00	92,689.00	90,695.00	128,765.00	165,938.00
Cash	20,312.00	26,741.00	18,055.00	31,830.00	36,970.00	40,246.00
Current Liabilities	77,813.00	79,767.00	79,624.00	73,951.00	94,294.00	119,916.00
Net Change in Working Capital	-        2,721.00	-    9,026.00	-    4,990.00	-   15,086.00	-      2,499.00	5,776.00
Net Change in Working Capital (increasing/decreasing)		6,305.00	-    4,036.00	10,096.00	-    12,587.00	-      8,275.00
Other information
Growth	-	27.3%	-11.2%	-47.7%	44.8%	45.8%
Purchases % of revenue	73.2%	75.8%	73.4%	64.9%	66.9%	67.8%
P&M Expenses % of revenue	8.7%	6.9%	7.7%	13.3%	9.1%	6.7%
SD&A Expenses % of revenue	3.4%	2.9%	3.0%	5.5%	4.3%	3.4%
R&D Expenses % of revenue	0.3%	0.3%	0.3%	0.5%	0.3%	0.3%
Exploration Expenses % of revenue	0.6%	0.3%	0.7%	1.0%	0.5%	0.4%
Depreciation % of revenue	8.6%	5.7%	8.3%	29.0%	10.3%	4.9%
CapEx % of revenue	6.8%	5.9%	6.7%	9.2%	7.3%	5.9%
Assets % of revenue	31.3%	25.1%	26.9%	50.2%	49.2%	43.5%
Cash % of revenue	6.7%	6.9%	5.2%	17.6%	14.1%	10.6%
Liabilities % of revenue	25.5%	20.5%	23.1%	41.0%	36.1%	31.4%

Model Assumptions

	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032	Explanations
Growth	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	1
Purchases % of revenue	66.7%	65.6%	64.5%	63.4%	62.3%	61.2%	60.1%	59.0%	57.9%	56.8%	2
P&M Expenses % of revenue	6.3%	5.9%	5.5%	5.1%	4.6%	4.2%	3.8%	3.4%	3.0%	2.6%	3
SD&A Expenses % of revenue	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	3.8%	4
R&D Expenses % of revenue	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	0.3%	5
Exploration Expenses % of revenue	0.4%	0.4%	0.3%	0.3%	0.2%	0.2%	0.2%	0.1%	0.1%	0.0%	6
Depreciation % of revenue	4.1%	3.4%	2.6%	1.9%	1.1%	0.4%	-0.4%	-1.1%	-1.9%	-2.6%	7
CapEx % of revenue	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	6.5%	8
Assets % of revenue	45.5%	47.5%	49.5%	51.5%	53.5%	55.5%	57.5%	59.5%	61.5%	63.5%	9
Cash % of revenue	11.2%	11.8%	12.4%	13.0%	13.6%	14.2%	14.8%	15.4%	16.0%	16.6%	10
Liabilities % of revenue	32.4%	33.4%	34.4%	35.4%	36.4%	37.4%	38.4%	39.4%	40.4%	41.4%	11

1 - Average revenue growth is 4.2% per year from 2017 to 2022. The same revenue growth is forecast.

2 - Average decrease in purchasing expenses is 1.1% per year from 2017 to 2022, the same decrease in purchasing is forecast.

3 - Average decrease in production and manufacturing expenses is 0.41% per year from 2017 to 2022, the same decrease is forecast.

4 - Average selling, distribution and admin expense is 3.8% per year from 2017 to 2022, this average is forecast.

5 - Average research and development expense is 0.3% per year from 2017 to 2022, this average is forecast.

6 - Average decrease in exploration expenses is 0.04% per year from 2017 to 2022, the same decrease is forecast.

7 - Average decrease in depreciation and amortisation is 0.75% per year from 2017 to 2022, the same decrease is forecast.

8 - Average CapEx is 6.5% per year from 2017 to 2022, this average is forecast.

9 - Average asset growth is 2% per year from 2017 to 2022, the same increase is forecast.

10 - Average cash growth is 0.6% per year from 2017 to 2022, the same increase is forecast.

11 - Average liabilities increase is 1% per year from 2017 to 2022, the same increase is forecast.

WACC Calculation (units $ m)

Risk Free Rate of Return	4.4%
Beta	1.21
Market Rate of Return	7.4%
Cost of Equity	8.0%
Credit Spread	0.85%
Cost of Debt	3.5%
Shares Outstanding	7,345.31
Share Price	30.28
Equity	222,416.06
Short Term Debt	9,044.4
Long Term Debt	76,098.00
Cash and Cash Equivalents	42,074.00
Debt	43,068.00
E/D+E	83.8%
D/D+E	16.2%
WACC	7.1%

Forecast Financials

Units ($m)	2023	2024	2025	2026	2027	2028	2029	2030	2031	2032
Total Revenue	397,168.82	413,682.87	430,883.56	448,799.45	467,460.27	486,897.00	507,141.90	528,228.56	550,192.00	573,068.67
% Growth	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%	4.2%
Purchases	-264,866.92	-271,329.43	-277,871.43	-284,488.37	-291,175.17	-297,926.20	-304,735.23	-311,595.44	-318,499.28	-325,438.54
P&M Expenses	- 24,950.63	- 24,291.96	- 23,535.39	- 22,673.90	- 21,700.08	- 20,606.08	- 19,383.58	- 18,023.81	-16,517.44	- 14,854.64
SD&A Expenses	- 14,956.35	- 15,578.22	- 16,225.96	- 16,900.62	- 17,603.34	- 18,335.28	- 19,097.65	- 19,891.72	-  20,718.80	- 21,580.28
R&D Expenses	- 1,191.51	- 1,241.05	-1,292.65	-1,346.40	-1,402.38	-1,460.69	-1,521.43	-1,584.69	-1,650.58	-1,719.21
Exploration Expenses	- 1,624.32	-1,526.38	- 1,417.49	- 1,296.91	- 1,163.85	-1,017.49	- 856.94	- 681.28	- 489.53	- 280.65
EBIT	89,579.09	99,715.82	110,540.64	122,093.25	134,415.45	147,551.27	161,547.07	176,451.64	192,316.38	209,195.34
Tax Rate	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%	34.0%
Depreciation & Amortisation	16,320.66	13,896.64	11,242.83	8,344.30	5,185.30	1,749.18	-1,981.66	- 6,025.77	-10,402.76	-     15,133.31
CapEx	- 25,815.97	- 26,889.39	- 28,007.43	- 29,171.96	- 30,384.92	- 31,648.31	- 32,964.22	- 34,334.86	- 35,762.48	-     37,249.46
Current Assets	180,780.98	196,571.41	213,362.41	231,209.88	250,172.66	270,312.63	291,694.92	314,387.99	338,463.90	363,998.41
Cash	44,302.42	48,626.58	53,233.75	58,139.98	63,362.16	68,918.11	74,826.54	81,107.15	87,780.69	94,868.97
Current Liabilities	128,873.73	138,369.05	148,431.19	159,090.87	170,380.38	182,333.67	194,986.41	208,376.12	222,542.20	237,526.06
NCWC	7,604.84	9,575.77	11,697.46	13,979.04	16,430.12	19,060.86	21,881.97	24,904.72	28,141.01	31,603.37
NCWC (inc/dec)	-  1,828.84	- 1,970.94	- 2,121.69	- 2,281.57	-  2,451.08	- 2,630.74	- 2,821.11	- 3,022.75	- 3,236.29	-    3,462.36
FCF	47,798.05	50,848.76	54,070.53	57,472.31	61,063.50	64,853.97	68,854.08	73,074.71	77,527.28	82,223.79
Growth Rate										0%
Terminal Value										1,158,697.87
Discount Factor	0.96703846	0.90296224	0.84313173	0.7872656	0.73510118	0.68639318	0.64091259	0.59844556	0.5587924	0.521766671
Present Value of FCF	46,222.55	45,914.51	45,588.58	45,245.97	44,887.85	44,515.32	44,129.44	43,731.23	43,321.66	42,901.63
Present Value of Terminal Value										604,569.93
Enterprise Value										1,051,028.68
Equity Value										1,050,034.68
Share Price										$       142.95

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

1. 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%.
2. 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.
3. 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.
4. 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.
5. 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.