Royal Dutch Shell Plc - Looks Attractive for the Long-Term

Royal Dutch Shell Plc (LON: RDSA) is a petrochemical and energy Company which is involved in the exploring, producing, refining, and marketing of oil and natural gas.

On 29 October 2020, the Company will announce the third quarter 2020 results.

Recent News

On 31 July 2020, the Company had completed the sale of the US Appalachia shale gas position to NFG Midstream Covington, LLC and Seneca Resources Company, LLC. The consideration amount of US$541 million (less closing adjustments) was paid fully in cash.

Financial Highlights (H1 FY20)


(Source: Company Website)

On 30 July 2020, the Company provided the interim results for the six months ended 30 June 2020. In H1 FY20, the Company reported a revenue of US$92.5 billion, which decreased from US$174.2 billion in H1 FY19, driven by a decline in all segments. The Group reported a loss of US$18.1 billion in H1 FY20 as compared to the reported profit of US$9.3 billion a year ago, due to the COVID-19 pandemic, and challenging macroeconomic conditions. It incurred a post-tax impairment charge of US$8.1 billion related to operations at Prelude floating LNG and Queensland Curtis LNG in Australia. The cash capital expenditure for H1 FY20 stood at US$8.5 billion. On 30 June 2020, the net debt stood at US$77.8 billion, and a net gearing was 32.7%. The Group declared the interim dividend per share of US$0.16 for Q2 FY2020.

Share Price Performance


1-Year Chart as of 7 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

Royal Dutch Shell Plc’s shares were trading at GBX 1,165.40 on 7 August 2020 (before the market close at 9:07 AM GMT+1), down by 0.88% against the last day closing price. Stock 52 week High and Low were GBX 2,417.00 and GBX 946.10, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The Company is exposed to macroeconomic risks including fluctuating prices of natural gas, crude oil, chemicals, and oil products. Failure to replenish the portfolio can impact the ability to sustain production levels and replace reserves. The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations. Global political uncertainty regarding trade policy also poses a risk for the Group.

Third Quarter Production Outlook

Upstream production will be in the range of 2,100-2,400 thousand boe per day. The Group anticipates Integrated gas production to be between 820 thousand boe per day and 880 thousand boe per day, while LNG liquefaction volume to be in the range 7.6–8.2 million tonnes. Production of Chemicals sales volume is anticipated around 3,600–3,900 thousand tonnes with a chemical plant utilization of around 78% to 88%. The production of oil products is expected to be in the range of 4,000–5,000 thousand barrel per day with a refinery utilization between 68% and 76%.

Conclusion
The Group stated that the outlook remains uncertain, and the current economic situation has weighed down on the demand of the oil and gas-related products. As outlined the net expense for full-year 2020 could be in the range of US$3,200-US$3,500 million and the corporate adjusted earning net of expense to be in the range of US$800-US$875 million. During H1 FY20, Shell witnessed a strong contribution from crude and oil products, capacity optimization, and lower operating expenses, which will help then to overcome uncertain times. Hence, the Group looks attractive and has the capability to sustain for the long term.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 1,165.40 (as on 7 August 2020, before the market close at 9:07 AM GMT+1) and will recommend fresh buying at the right time.

Rio Tinto Plc - Strong Portfolio of Projects and Robust Balance Sheet

Rio Tinto Plc (LON: RIO) is a FTSE 100 listed, metals and mining Company operating at a global scale, which produces Iron Ore, Copper, Borates, Aluminium, Diamond, Salt and Titanium.

On 16 October 2020, the Company will release the third quarter operations review.

Recent News

On 4 August 2020, the Company reiterated the determination to ensure that the destruction of heritage sites of exceptional archaeological and cultural significance, such as the Juukan rockshelters, never occurs again.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 29 July 2020, the Company provided the interim result for the six months ended 30 June 2020, with the strong and stable operations. In H1 FY20, the consolidated sales revenue decreased by 7% year-on-year to $19.4 billion, driven by lower prices and volumes for copper and lower aluminium prices. The underlying EBITDA for H1 FY20 reduced by 6% year-on-year to US$9.6 billion, with a margin of 47%. The net earnings were down by 20% year-on-year to US$3.3 billion, mainly reflected a US$0.2 billion higher impairment charge, US$0.3 billion increase in exchange rate losses and US$0.1 billion net additional closure costs for nonoperating and fully impaired assets. The Group has maintained strength in the balance sheet, with net debt of US$4.8 billion, and free cash flow of US$2.8 billion. The Board has declared an interim ordinary dividend of US$2.5 billion, with an interim pay-out ratio at 53% of the first half of 2020 underlying earnings, which is equivalent to 155 US cents per share (an increase of 3% against the first half of 2019).

Share Price Performance

1-Year Chart as of 7 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

Rio Tinto Plc’s shares were trading at GBX 4,736.50 on 7 August 2020 (before the market close at 9:10 AM GMT+1), up by 0.35% against the last day closing price. Stock 52 week High and Low were GBX 4,991.00 and GBX 2,954.00, respectively.

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

The Company is cautious about the outlook for key commodities in the short term. The Group operates in multiple geographies, and profits can be impacted negatively due to the foreign exchange rate fluctuations.Global political uncertainty regarding trade policy also poses a risk for the Group.

Valuation Methodology



Conclusion

In H1 FY20, the Company has delivered resilient performance and is navigating the new and ongoing challenges of dealing with COVID-19. The Group has declared an interim dividend per share of 155 US cents and has reconfirmed the 2020 production guidance across all commodities. The Group witnessed a strong balance sheet with decent cash flow generation capabilities to drive shareholder returns. Overall, the Group seems to be well-positioned to deliver a strong performance in the long run.

Over the course of 3 years (FY16 - FY19), the Company’s revenue surged from US$33,781 million in FY16 to US$43,165 million in FY19. Compounded annual growth rate (CAGR) stood at 8.51%.
Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 4,736.50 (as on 7 August 2020, before the market close at 9.10 AM GMT+1) and will recommend fresh buying at the right time.
 
*All forecasted figures and Industry information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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