Royal Dutch Shell Plc – Petrochemical and Energy Company with wide Global Reach

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.

Financial Highlights – Significant Decline in Financial Performance Q1 FY2020

(Source: Quarterly Results, Company Website)
 
In the first quarter of the financial year 2020, due to a decline in the demand for oil products, the revenue declined significantly to USD 60,959 million as against USD 85,662 million in Q1 FY2019. The group managed to reduce its operating expenses but were offset by declined revenue for the period. The PBT (profit before tax) stood at USD 623 million in Q1 FY2020 versus USD 9,406 million in the first quarter of the financial year 2019. The net loss attributable to shareholders stood at USD 24 million in Q1 FY2020 versus net income attributable to shareholders of USD 6,001 million in Q1 FY2019.

Share Price Performance

Daily Chart as of May 15^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Royal Dutch Shell Plc shares were trading at GBX 1,234.40 at the time of writing before the market close (at 10:09 AM GMT+1) on 15^th May 2020 and up by 2.52% versus the previous day closing price. Stock's 52 weeks High is GBX 2,637.50 and Low is GBX 946.10.

Valuation Methodology

*Peers: Eni SpA, BP Plc and TechnipFMC Plc.

*Currency Exchange rate taken for 1 USD = 0.81925 GBP.

Conclusion
The company has shown a decline in the financial performance in the Q1 of the financial year 2020. Both the Top-line and the Bottom-line performance have declined, while the operating expenses declined for the period. The group expectmacroeconomic uncertainty to create a negative impact on commodity price. In Q2 FY2020, the market conditions are might change due to evolving market conditions. Due to constraints in infrastructure and lower demand, the group may reduce its gas and oil production, which would negatively impact its financial and operational metrics. The group’s Marketing and Integrated Gas businesses have performed well with strong cash flows. Shell is confident that its integrated business model and high-quality assets will help then to overcome uncertain times.

Therefore, based on the above rationale, we have given a "Hold" recommendation on the stock, at the closing price of GBX 1,204 (as on 14^th May 2020).

Reckitt Benckiser Group Plc – Offering Wide variety of Consumer Goods Under Famous Brand Names

Reckitt Benckiser Group Plc (LON: RB.) is a global company offering consumer good. The company operations are divided into three categories being Hygiene, Nutrition and Health.

Q1 Trading Update with Increased Capacity to Meet Strong Demand
On 30^th April 2020,Reckitt Benckiser Group released an update on the trading performance for Q1 FY2020. In the month of March and April, the group witnessed strong consumer demand, and it is looking to increase investment in capacity to cater to the growing demand. The revenue in the Q1 FY2020 surged by 12.3 per cent to GBP 3,544 million, reflecting strong demand for hygiene and health products and improved trends in market share of both businesses. RB witnessed strong demand for Mucinex, VMS, Nurofen, Dettol, and Lysol in Q1 FY2020, despite uncertain conditions in many markets. The net revenue from e-commerce increased by over 50 per cent as consumers stayed at home in March 2020.

Share Price Performance

Daily Chart as of May 15^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Reckitt Benckiser Group Plc shares were trading at GBX 7,042 at the time of writing before the market close (at 10:14 AM GMT+1) on 15^th May 2020 and up by 0.89% versus the previous day closing price. Stock's 52 weeks High is GBX 7,120.00 and Low is GBX 5,130.00.

Valuation Methodology

*Peers: Science in Sport Plc, Diageo Plc, Unilever Plc, and Imperial Brands Plc.

Conclusion
The group has made a decent start to the financial year 2020, despite the outbreak of a covid-19 pandemic. To meet the growing demand, the company has made its supply chain resilient and flexible. As the RB caters both health market and hygiene market, it will be benefited from the actions taken by authorities to contain the spread of the virus and expect to perform better than the original forecasts. The group expect toachieve growth of mid-single-digit in revenue organically, and margins are expected to be mid 20’s by 2025. The demand for masks, hand sanitizer, and other personal care and hygiene products have increased in the financial year 2020,  due to Coronavirus pandemic. The demand for the company’s Lysol and Dettol products have increased as well. 

Based on the above rationale, we have given a “Hold” recommendation at the closing price of GBX 6,980.00 (as on 14^th May 2020).

Barclays Plc - Diversified Business Model with Decent Growth Potential

Barclays Plc (LON: BARC) is a London, United Kingdom-based Bank, operating through Consumer, Corporate and Investment Banking (CIB) divisions.

Q1 FY2020 Trading Update Reflecting Improved Income Performance
On 29th April 2020, Barclays released an update for the trading performance for the first quarter of the financial year 2020 ending 31^st March 2020. The group has shown strong operating performance, and its return on tangible equity (RoTE) stood at 5.1 per cent for the period, despite impacts of Covid-19 outbreak. Led by strong performance in CIB (+44%), the total income increased by 20% to £6,283 million in Q1 FY20. CET1 ratio for Q1 FY20 decreased to 13.1% (December 2019: 13.8%), primarily reflecting RWA (Risk-Weighted Assets) growth partially offset by profits and cancellation of dividend. The TNAV (tangible net asset value) per share stood at 284 pence in the first quarter of the financial year 2020 versus 262 pence as on 31^st December 2019.

Share Price Performance

Daily Chart as of May 15^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Barclays Plc shares were trading at GBX 99.98 at the time of writing before the market close (at 10:20 AM GMT+1) on 15^th May 2020 and up by 2.92% versus the previous day closing price. Stock's 52 weeks High is GBX 192.99 and Low is GBX 73.04.

Valuation Methodology

*Peers: Royal Bank of Scotland Group Plc, Standard Chartered Plc, Virgin Money UK Plc and Lloyds Banking Group Plc.

Conclusion
Despite the existence ofshort-term headwinds from spending on initiatives related to the covid-19 pandemic, the scenario remained positive for Barclays. The group’sperformance in 2020 is expected to show the challenging environment, including the impact of covid-19. The Consumer, Cards & Payments (CC&P) and Barclays UK (BUK) are expected to show headwinds for remaining FY2020, due to macroeconomic downturn caused by lower interest rate and impact of the COVID-19 pandemic. The Markets client flow continues to be at healthy levels for the period. The diversified customer base of customers plays a critical role in the growth of the bank. The bank is planning to increase its customer reach and enhance its market position. The Bank is planning to diversify the business with less capital-intensive structure.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 96.76 (as on 15^th May 2020, before the market close at 8:35 AM GMT+1), with single-digit upside potential based 0.32x NTM Price/Book Value (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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.