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I agree Barrie - the cut in dividend obviously hit the yield and, for many institutions and PI's, reliable and good yield was the attraction of Shel for decades. Now the sp is nearly back to 2019 levels (it got there for a few weeks) but the yield is roughly half what it was. Undoubtedly I think dividend (and therefore yield) is a factor in the disconnect between Shel (also BP) and their US cousins. Buybacks simply haven't filled the gap (nor will they in my view).
Phoey: I offer up observations rather than insights - highly subjective and very much open to debate. Regarding gas, I’d make the observation that LNG is way more volatile than Brent and, consequently, its short term impact on Shel’s sp is much, much less evident. To demonstrate, here is a 6 year chart of Brent in comparison to Platts JKMC1, with March 3rd marked (the day O&G spiked as a result of Ukraine invasion).
https://invst.ly/yeyuw
It’s also harder to pin down a benchmark (like Brent is for oil) that somehow embraces all global LNG markets and how that translates to Shel - which is much bigger in Asia and Oceania than in Europe - where there is obvious current pressure on price: https://www.statista.com/statistics/260326/natural-gas-production-of-shell/
The following link to ICE gives a good summary of the respective benchmarks and, from it, I assume that JKM futures would be a good general benchmark for gas futures affecting Shell: https://www.theice.com/global-natural-gas-futures . We should all get a better idea of the current situation regarding LNG & Shel when the Q2 results come out at the end of July.
Thanks for the continuing insights Boyo.
Given that SHEL is a big player in gas and as you say 'gas is a different matter' vs oil - how do you see the gas impacting SP going forward?
Hi Boyobach
I’m nowhere near as savvy as you but could it be as simple as the disconnect in dividend yield that Shel represents as an alternative to other oil majors. It’s naive of course as a good dividend doesn’t compensate for a concurrent fall in SP but the ratio of price to Brent is holding consistent at 18.25-18.5 it seems so at quite a discount to MA
Oil may be in a bear market relative to its volatile gains following the invasion of Ukraine (see chart from 1st March onwards) but, in reality it has returned to the trend it has been following for the last two years:
https://invst.ly/yeq9-
Russian oil has been switched to China and elsewhere causing supplies from OPEC to become available to cover demand from Europe. The overall supply/demand dynamic has probably not changed for oil as much as many might suppose. Gas is a different matter.
For Shel there will be a ‘Goldilocks’ price for oil which is healthy for the business without being damaging for global economies. If OP is too high then it stifles demand whilst simultaneously stimulating overproduction leading to a boom/bust cycle.
Shel’s recent fall in sp below 2019 levels highlights the disconnect that has arisen between the sp and that of other oil companies - like CVX - as well as with its relationship to OP. Whilst Brent is currently about 77% up and Chevron is plus 23%, Shel is down around 8% compared to their respective prices at the end of November 2019:
https://tvc-invdn-com.investing.com/data/tvc_abbf5e2035b787e01b9ebf83efa4aeca.png
By this comparison, Shel would need to be nearly 2800 to match Chevron’s sp today. The difference with CVX is, on the face of it, largely due to the cut in dividend. Rather than fully reinstate dividends whilst revenue has recovered, Shel has opted to reduce debt and to buy back shares. There has also been the sale of Permian assets and, more recently, losses incurred as a consequence of the exit from Russian business. In theory, Shel should be a stronger company as a result of the debt reduction but shareholders do not seem to have experienced much direct capital benefit from the buybacks, which is possibly because, rather than being a ‘distribution’, they have simply offset shrinkage of the business. If the market is currently undervaluing Shel then the Q2 results on July 28th will hopefully shed some light on the subject.
Do the math on buybacks - Shell has brought back over 80mn shares or over 1% of its total shares outstanding within 20 trading days! Another 6 months of this buying back pace and shell would reduce its total shares outstanding by another 6%. And as the share count goes down, our stake in the Company is rising by 1% every 20 trading days when the buyback is close to 4mn shares per day.
You can say that your stake in the company is technically going up with each buyback day. Equivalent to you buying more shares every day if the share count was constant.
Each remaining share should get higher proportion of dividends in the future. Else buying back that much is just as good imo.
Recovery in OP just now has bounced Shel back towards £21 but I don’t have enough cash to make money on an 80p move alas nor a deep understanding of where OP are going from which to predict future SP moves but yield must play part in keeping it somewhere around £20 or 4%
Are the share buybacks holding up the share price?
Naise
SP holding at 18.25 x $ OP well below 30 day MA of 20.2
Check out Boyobach when he posts as very informative
GLA as while I’m nervous about unrealised profits I’ve given up by not trading I’ll hold on maybe buy in small increments below £20 if opportunity presents
My mind is stuck with that dilemma, of what's volatility and what's trend.
Bimmer668
£20 mathematically feasible with 18.25 multiple of OP extrapolated at last close to current Brent future of $109.59
B*gger should’ve sold at £24.50 but will have to hold now unti returns to similar level though I’m still in money
Recent article in Washington Post :-
Oil Is in Another Bear Market - and for Good Reason
https://www.washingtonpost.com/business/energy/oil-is-in-another-bear-market---and-for-good-reason/2022/06/22/1a11fcaa-f26f-11ec-ac16-8fbf7194cd78_story.html
Will my prediction of oil at USD140 and Shell at £28 in 12 months still happen?
Was £24.59 the peak?
Only time will tell.