Royal Dutch Shell Plc (LON: RDSA)

Business Overview
Royal Dutch Shell Plcis a petrochemical and energy company which is involved in the exploring, producing, refining and marketing of oil and natural gas.

Recent News
On 21^st February 2020, the company announced that it would release its first quarter results and first quarter interim dividend announcement for 2020 on 30^th April 2020.

Financial Highlights – Financial year 2019 (31st December 2019, USD, million)

(Source: Quarterly Report, Company Website)

For the financial year ending 31st December 2019, due to a decline in revenue from integrated gas and downstream segments, the revenue declined to USD 344,877 million from USD 388,379 million in FY2018. In Q4 FY2019, the revenue stood at USD 84,006 million versus USD 102,228 million in Q4 FY2018. In FY2019, the PBT (Profit before tax) stood at USD 25,486 million versus USD 35,621 million in FY2018. The PBT in Q4 FY2019 declined to USD 2,791 million versus USD 7,907 million in Q4 FY2018. The net income (attributable to shareholders) stood at USD 15,843 million in FY2019 versus USD 23,352 million in FY2018. The basic earnings per share declined to 1.97 cents in FY2019 from 2.82 cents in FY2018. The basic earnings per share declined to 0.12 cents in Q4 FY2019 from 0.68 cents in Q4 FY2018.

Share Price Performance  

Daily Chart as on 21^stFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 21^st, 2020, Royal Dutch Shell Plc shares were trading at GBX 1,900 at the time of writing before the market close (at 9:03 AM GMT), down by 1.46 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,647/GBX 1,892.80. The stock price has givennegative 21.44 per cent returns during the previous year. In the last month, the stock price has given negative 13.19 per cent returns and now stock price is expected to take support at these levels and bounce back from here.

Valuation Methodology


Growth Factors
The Group has delivered decent cash flow performance in 2019 despite challenging macroeconomic conditions in the industry. The company generated $47 billion in cash flow from operating activities. The Group is creating value for its investors by distributing over $25 billion in dividends and share buybacks programme.

Conclusion
The company has shown a decline in financial performance in the Q4 and Financial year 2019. Both the top-line and the Bottom-line performance have declined, while the operating expenses declined for the period. New contracts, increasing demand for oil and petroleum products and upstream investment forecast for 2019 could provide new growth opportunities to the company. The company looks attractive and has the capability to sustain for the long term.
Based on the decent prospects and support from the valuation as done using the above method, we have given a “BUY” recommendation at the current price of GBX 1,872.00 (as on 21st February 2020, before the market close at 3 PM GMT), with high single-digit upside potential based on 11.20x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Tekmar Group Plc (LON: TGP)

Business Overview
Tekmar Group Plc is a UK based company provider of flexible pipe protection systems, engineering services, subsea cable and umbilical cords. The company’s product offerings include Cable hang-offs, TEKDUCT, j-tube seals, bend stiffeners, SPLIT PIPE and bend restrictors.

Trading Statement and the impact of Coronavirus (as on 18^th February 2020)
The outbreak of coronavirus is affecting the Group's performance and travelling restriction in China could worsen the situation for the company.  The Group expected that its earnings in FY20 would be broadly in line with those achieved in FY19. China accounted for 10 per cent of the total revenue forecast in FY20. It also accounted for 20 per cent of the company’s outstanding supply-chain commitments. The Group is not yet able to evaluate the full impact of the virus on FY21 and it is expected that the company would report that in near future.

Financial Highlights – H1 Financial year 2020 (30th September 2019, GBP, million)

(Source: Interim Report, Company Website)

In the first half of the fiscal year 2020, the company’s revenue grew to GBP 17.1 million as compared to GBP 7.1 million in the first half of the fiscal year 2019. Gross profit increased to GBP 5.4 million in H1 FY2020 against GBP 1.6 million in H1 FY2019. Adjusted EBITDA was GBP 2 million during the period versus loss of GBP 0.8 million in H1 FY2019. Profit after tax during the period was GBP 0.7 million against loss of GBP 2.5 million in H1 FY2019.

Share Price Performance  

Daily Chart as on 21^stFebruary 2020, before the market closed (Source: Thomson Reuters)

On February 21^st, 2020, Tekmar Group Plc shares were trading at GBX 120.94 at the time of writing before the market close (at 1:20 PM GMT), up by 5.1 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 185/GBX 92.70. The stock price has given20.94 per cent returns during the previous year. In the last month, the stock price has given negative 26.25 per cent returns and now stock price is expected to take support at these levels and bounce back from here.

Valuation Methodology


*Peers: Pressure Technologies Plc, Enteq Upstream Plc, Core Laboratories NV, Schlumberger NV, National oilwell Varco Inc and Rosetti Marino Spa.
Conclusion
The company had shown decent financial performance in the first half of the financial year 2020. There had been an increase in both top-line and bottom-line performance. The recent outbreak of coronavirus in China could hamper the business and growth of the company. The company is well positioned to grab maximum opportunity from the strong growth in the offshore wind market globally. The company’s balance sheet is robust for the current period. The company had established an entity in China to expand its operations internationally.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 115 (as on 20th February 2020) with lower double-digit upside potential based on 22.57x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

*All forecasted figures and information have been taken from Thomson Reuters.                                                            
*Currency exchange rate taken for 1 US Dollar = 0.7741 GBP.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.