The Investment Column: Shell

Click to follow
The Independent Online
THE OIL giant Royal Dutch/Shell turned in a slick performance in a declining market yesterday with an upbeat presentation to analysts and fund managers.

In a market that fell almost a 70 points yesterday, Shell rose 25.5p to 499.5p.

Shell said an an upbeat trading statement that it is meeting all its targets in its savage cost-cutting and disposals programme. Over the last year, since it announced its restructuring plans, crude oil prices have more than doubled and the company is now recovering its reputation among investors.

It had been slow to realise the need for radical change compared with its nimbler rivals BP Amoco and Exxon Mobil, which cut costs and then hit the acquisitions trail.

It is playing catch-up and on yesterday's evidence it is progressing well. Some two-thirds of the work in its restructuring is now done, Shell said yesterday.

Total proceeds from disposals will be $12bn (pounds 7bn) by 2001 and 18 per cent of the workforce will be cut by that year leading to at total of 18,000 job losses.

But what really excited the market yesterday were a couple of nice surprises pulled out of the bag.

The target for year-on-year savings by 2001 was raised from $2.5bn to $4bn. Shell also flagged up a plan to return capital to shareholders. It said it was considering a "multi-year" share buyback.

This is currently made unappealing by Dutch tax law and Shell would have to persuade the government there that change is necessary. That process is in train and the company is sounding confident that a solution can be achieved. BP Amoco has already said that it expects to buy back shares next year.

Shell maintained its conservative target for 2001 of 14 per cent for return on average capital employed (ROACE), but analysts fully expect the company to surpass that.

Consensus forecasts for the full year are for profits of pounds 1.8bn, which puts the shares on a foward multiple of 27.

This is a 20-25 per cent discount to BP Amoco and there must be a good chance it will close that gap. With surging crude oil prices and Shell's good spread of assets, analysts are talking about 600p a share. Buy.