Royal Dutch Shell finals

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Royal Dutch Shell announced their full year results yesterday.  Revenue for the year was $421.1bn down 6.7%, on production output for oil & gas that was down 4%. 

 

Earnings on a CCS basis were £19.0bn an increase of 13.7% and excluding identified items (mainly restructuring costs, asset impairments and re-pricing derivatives) were $22.6bn up 15.8% from last year. EPS on a CCS basis excluding identified items was $3.57, 15.1% above last year and on a reported basis, EPS was $2.38 a reduction of -8.5%.

 

Free cash flow improved over last year's $0.8bn outflow to $11.9bn.  FCF though was not quite sufficient to cover the dividends and share buy-backs of $12.9bn, so the $14bn for the sale of assets and JV interests (well timed before the oil price decline), mainly went towards that and reducing net debt by $10.9bn to $23.9bn.  Gearing was a very conservative 13.9% and just 0.4x EBITDA, operating cash flow was a substantial 183% of net debt.  Shell have always run with a conservatively financed balance sheet and this will, during what may be a prolonged period of an oil price around $50, support the business. 

 

A final dividend of $0.47 was declared making $1.88 for the year - an increase of 4.4%. management 

stated that they expect to also pay a first quarter dividend of $0.47.

 

Management in a separate statement said that they are deferring spending in many areas, exiting some projects, and driving down purchase costs.  They expect this to result in a reduction of capital expenditure for 2015-17 of over $15bn.

Shell's return on capital employed is just under 15% and with a weighted average cost of capital of 10% there is little margin of safety.

The share price was down to 2104.5p today and if the dividend remains at the current level, on a prospective yield of 6% and assuming an EPS of $3 for 2015 on a prospective P/E of 10.5.  Good value if the oil price recovers over the next 24 months, before pressure is put on the sustainability of the level of dividend.