Royal Dutch Shell Plc

Royal Dutch Shell Plc (LON: RDSA) is listed on the FTSE 100 index. It is a Petrochemical and Energy company that is involved in the exploring, producing, refining, and marketing of oil and natural gas.

On 28 October 2021, RDSA would release its Q3 FY2021 results.

The next dividend of USD 0.24 per share would be paid on 20-September-2021 (interim dividend).

Investment Rationale for Valuation – Hold at GBX 1,468.20

• RDSA has launched a USD 2 billion share buyback programme to return liquidity to its shareholders.
• The Company recently announced its intention to buy renewable energy retailer Inspire Energy Capital LLC, to expand its renewable power footprint in the US.
• In Q2 FY2021, RDSA’s adjusted earnings were up ~71% QoQ.
• In the last three months, the stock has outperformed the benchmark FTSE 100 index. Given the prospects of RDSA, this trend could continue in future.
• On the technical front, the 20-day EMA at about GBX 1,414.90 is sustaining below the stock price, indicating a potential uptick in the stock price in the near term.

Key Risks

• Volatility in oil and gas prices could affect the margins of the Company.
• The dividend payment could put pressure on the Company’s liquidity.
• An inability to find reserves and expand current reserves could dent a company’s future operations.
  

Financial Highlights (for three months ended 30 June 2021 (Q2 FY2021), as of 29 July 2021)

(Source: LSE Website)

• Driven by its higher realised oil prices, higher marketing margins and lower operating expenses, RDSA achieved an adjusted earnings QoQ growth of ~71% in Q2 FY2021.
• It led to a ~25.5% QoQ surge in free cash flow in Q2 FY2021.
• Driven by net debt reduction and improved earnings, gearing improved to 27.7% in Q2 FY2021 from 29.9% in Q1 FY2021.
• It prompted the management to declare a dividend per share of USD 0.24 and launch share buyback worth USD 2 billion.

One Year Share Price Chart

(Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company achieved a decent performance in Q2 FY2021, with around 71% QoQ surge in adjusted earnings. It has also launched a share buyback programme. However, there is still some uncertainly in the future due to volatility in oil and gas prices and how quickly the market would recover. Hence, the management is expecting Q3 FY2021 results to be dependent on evolving market conditions. The stock made a 52-week low and high of GBX 878.10 and GBX 1,598.15, respectively. 

Based on decent growth prospects, decent performance in Q2 FY2021, the Company’s launch of a share buyback programme, and support from valuation as done using the above method, we have given a “Hold” recommendation on Royal Dutch Shell Plc at the current market price of GBX 1,468.20 (as of 29 July 2021 at 11:50 AM GMT), and would recommend fresh buying at the right time depending on how quickly macroeconomic conditions would recover.

Greencoat UK Wind Plc

Greencoat UK Wind Plc (LON: UKW) is listed on the FTSE 250 index. It invests in operating UK wind farms and preserve capital in the process.

The next dividend of GBX 1.795 per share would be paid on 27 August 2021 (interim dividend).

Investment Rationale – Hold at GBX 134.90

• During H1 FY2021, UKW made the full acquisition of Braes of Doune wind farm.
• The Company in H1 FY2021 achieved a ~165% YoY surge in return on investments.
• On the profitability front, UKW has performed strongly, with a significant ~259.3% YoY surge in net income in H1 FY2021.
• On the technical front, the 20-day EMA at about GBX 132.70 is sustaining below the stock price. Hence, there could be a potential uptick in the stock price in the near term.

Key Risks

• UKW’s investment returns could be adversely affected if the wind turbines fail to perform as expected.
• The dividend payment could affect the liquidity of the Company.
• Any unfavourable change in regulations could adversely impact the value of green benefits earned.

Financial Highlights (for six months ended 30 June 2021 (H1 FY2021), as of 29 July 2021)

(Source: LSE Website)

• Driven by robust portfolio and strategic acquisitions, UKW in H1 FY2021 achieved a ~165% YoY surge in return on investments.
• It led to a significant ~259.3% YoY surge in net income in H1 FY2021.
• During H1 FY2021, UKW completed the full acquisition of Braes of Doune wind farm. It paid £48.1 million for this deal.
• Driven by the strong performance, UKW increased its cash balances by £1.3 million.

One Year Share Price Chart

 (Source: Refinitiv, Analysis done by Kalkine Group)

Conclusion

The Company delivered a resilient performance in H1 FY2021 driven by operational excellence. It continues to focus on investing in high-quality assets. However, the delta variant of Covid-19 could cause volatility in power prices in the near term. Meanwhile, the stock made a 52-week low and high of GBX 124.60 and GBX 149.00, respectively. 

Based on the recent acquisition, decent performance in H1 FY2021, and investing in high-quality assets, we have given a “Hold” recommendation on Greencoat UK Wind Plc at the current market price of GBX 134.90 (as of 29 July 2021 at 11:50 AM GMT), and would recommend fresh buying at the right time depending on how power prices fare in the future.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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