Stock of the day 29/04/2015 – Royal Dutch Shell PLC

With Brent Crude still trading just about $64 per barrel the commodity is causing headaches for its related companies; investors will see how big this continued migraine is when Royal Dutch Shell announces its Q1 2015 earnings release on Thursday.

After starting 2014 at £22.01 and approaching £25 as the year went on, Shell ended up ringing in the New Year at £21.67 after its gains were wiped out by the increasing presence of the oil-price crisis. Things were looking a bit better in January as the oil price rallied, allowing Shell to reach £22.11 by the end of the month. However, by the middle of March oil was back in the doldrums, leading the company to a 2015 low of £19.21. After recovering slightly, April 8th then saw over 5% in declines from £20.87 to £19.82 following the BG deal reveal; since then Shell has gradually clawed back most of these losses to currently trade at £20.63.


(Source: IT-Finance.com 29/04/2015)

Thursday’s release will be the first quarterly release since the aforementioned £47 billion takeover of BG. Considering the oil landscape many saw this move as the company taking on unneeded risk, something reflected in the immediate losses Shell saw after the deal was announced. However, Shell is eager to try and compete with ExxonMobil, and is aiming to create a company with a value of around £200 billion. Investors will be eager for any scraps of information about the integration of BG, and the job cuts and trimming down that is inevitable.

BP was the first major oil company to announce its first quarter earnings on Tuesday, and managed to impress investors by avoiding the rumoured worst case scenario decline to $1.3 billion in profits by posting $2.13 billion instead. A loss, but a less precipitous loss, and something Shell will be keen to emulate. 

Analysts are expecting profits to have halved to around $2.44 billion (£1.6bn), a slight improvement on last quarter’s staggering 60% fall in year-on-year net income to $773 million, a quarter that also saw revenue decline by 15% to $93.4 billion. Investors will also be looking for more signs of spending cuts especially following the expensive purchase of BG. Shell have already announced $15 billion in cuts to potential spending between now and 2018, and could indeed reveal more in its earnings release.

The acquisition of BG, and the expected (if mild) stalling of losses, is outweighing the overall negative situation in oil in the mind of analysts, who have given Royal Dutch Shell a consensus rating of ‘buy’ with a target price of £22.52.