Royal Dutch Shell Plc (LON: RDSA)

Business Overview
Royal Dutch Shell PLC (LON: RDSA) is a petrochemical and energy company which involves in the exploring, producing, refining and marketing of oil and natural gas. The company explores for natural gas and crude oil globally, in conventional fields and from other sources, such as coal formations, tight rock and shale.

Recent News
On 20^th December 2019, the company announced its fourth-quarter update for the financial year 2019.

Q4 Update FY2019
The company expected Integrated Gas Production to be in the range of 920 to 970 thousand barrels of oil equivalent per day. It expected LNG liquefaction volumes to be in the range of 8.8 to 9.4 million tonnes. Upstream Production is likely to be in the range of 2,775 to 2,825 thousand barrels of oil equivalent per day. Deferred tax charges anticipated to have a negative impact on earnings between $500-600 million compared to the Q4 FY2018.The company expected Oil Products sales volumes to be between 6,500 to 7,000 thousand barrels per day. The company expected total margins to be impacted by lower asset utilisation. Cash capital expenditure for FY2019 expected in the range of the $24-29 billion range.

On 30^th January 2020, the company will release its fourth quarter and full-year results for 2019.

Financial Highlights – Q3 Financial year 2019 (US$, million)

(Source: Interim Report, Company Website)

During the nine months of the financial year 2019, the company’s revenue declined by 8.83 per cent to $260,871 million as compared to $286,151 million in nine months FY2018, due to the decline in the revenue from Integrated Gas and Downstream segments during the period. The revenue in the Q3 FY2019 declined to $86,592 million from $100,151 million in Q3 FY2018. The total revenue and the other income were $267,041 million in nine months FY2019 versus $291,930 million in nine months FY2018. The total revenue and the other income stood at $89,541 million for Q3 FY2019 versus $101,548 million for Q3 FY2018. The profit before tax declined by 18.11 per cent from $27,714 million in nine months FY18 to $22,695 million in nine months FY19. The profit before tax stood at $8,372 million in Q3 FY2019 versus $9,737 million in Q3 FY 2018. The company’s profit for the year attributable to the shareholders stood at $14,878 million in nine months financial Year 2019 as against $17,762 million in nine months financial Year 2018. The basic earnings per share declined from $2.14 in nine months FY2018 to basic earnings per share of $1.84 in nine months FY2019.

Share Price Performance

Daily Chart as on 20^thDecember 2019, before the market closed (Source: Thomson Reuters)

On December 20^th, 2019, Royal Dutch Shell Plc shares were trading at GBX 2,247 at the time of writing before the market close (at 12:30 PM GMT), down by 1.05 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,811.38/GBX 2,143. The stock price has declined 13.35 per cent return in the last six months. However, it is recovering now giving 5.29 per cent returns in the last week.

Conclusion
The company expects weak economic growth in some advanced economies in the second half of the financial year 2019. The Chinese market had shown slow growth due to the ongoing trade tensions with the US. Despite week top-line and the bottom-line performance, the company has reduced its total expenditure in the third quarter and for nine months period of the financial year 2019. 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.

The company’s total revenue has grown from $264,960 million in FY2015 to $388,379 million in FY2018 giving approximately 13.60 per cent growth on a CAGR basis.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 2,241 (as on 20th December 2019, before the market close at 11:25 AM GMT).

International Consolidated Airlines Group SA (LON: IAG)

Business Overview
International Consolidated Airlines Group SA (IAG) is one of the world’s largest airline group headquartered in London, United Kingdom. The group has 573 aircraft carrying around 113 million passengers to 268 destinations each year.

Recent News
On 8^th November 2019, the company host its Capital Markets Day where it announced its medium-term planning goals for the three years 2020-2022.

Highlights of Capital Markets Day
The company expected return on Invested Capital to be around 15 per cent. The operating profit margin likely to be in the range of 12-15 per cent. The company expected ASK growth in 2020 to be 3.2 per cent. Average EPS growth of 10 per cent+ per annum (compared to 12 per cent+ per annum previously), reflecting the lower planned ASK growth. Financial leverage to be investment grade (no change) with net debt/EBITDA at or below 1.8 times.

Financial Highlights – Nine months Financial year 2019 (30^th September 2019, Euro, million)

(Source: Interim Report, Company Website)

In the nine months of the financial year 2019, the company’s total statutory revenue grew by 5.7 per cent to Euro 19,399 million as compared to Euro 18,346 million for the same period of the last year due to the steady growth of both passenger revenue and other revenue. Statutory operating profit (before exceptional items) declined by 9 per cent in comparison with the last year data mainly due to an increase in the operating and administrative expenses for the period. Statutory Operating profit (after exceptional items) declined from Euro 3,159 million in nine months FY2018 to Euro 2,520 million in nine months FY2019. Adjusted earnings per share fell by 1.4 per cent to 88.7 cents in 9M FY19 as compared with the corresponding period of the last year. On 30 September 2019, the cash was Euro 7,838 million, and net debt to EBITDA stood at 1.2 times, and it was in line with 2018. The net debt reduced by 3.9 per cent to Euro 6,179 million in nine months FY2019 against the same period in 2018. Interim dividend per share was 14.5 cents.

Share Price Performance  

Daily Chart as on 20^thDecember 2019, before the market closed (Source: Thomson Reuters)

On December 20^th, 2019, International Consolidated Airlines Group SA shares were trading at GBX 623.4 at the time of writing before the market close (at 2:25 PM GMT), down by 0.39 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 667.37/GBX 411.50. The stock is in an uptrend in short as well as the long term. It has delivered 35.37 per cent return in the last six months and 13.18 per cent in the last one month.

Conclusion
During the third quarter of the financial year 2019, the company has delivered mixed financial performance. Industrial action by pilots' union BALPA (British Airline Pilots’ Association) and other disruption containing threatened strikes by Heathrow airport employees impacted the business performance of the company. Further, the fuel bill surged by Euro 136 million in the current period. The company is a leading player in the airline arena, with an aircraft base of around 550 and 280 destinations. The group has consistently delivered an EBITDA margin above 15 per cent for the last four years, which is a robust fundamental indicator and shows management efficiency. The company provide an opportunity to invest for the long term.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 620.20 (as on 20th December 2019, before the market close at 11:50 AM GMT).

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