Royal Dutch Shell Plc

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

(Source: Annual 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 the financial year 2019, the PBT (Profit before tax) stood at USD 25,485 million versus a PBT (Profit before tax) of USD 35,621 million in the financial year 2018. The net income stood at USD 16,432 million in the financial year 2019 versus a net income of USD 23,906 million in the financial year 2018. The net income (attributable to shareholders) stood at USD 15,842 million in the financial year 2019 versus a net income (attributable to shareholders) of USD 23,352 million in the financial year 2018. The basic earnings per share declined to $1.97 in FY2019 from basic earnings per share of $2.82 in FY2018.

Share Price Performance

Daily Chart as of March 12^th, 2020, before the market close (Source: Thomson Reuters)

Royal Dutch Shell Plc shares were trading at GBX 1,263.00 at the time of writing before the market close (at 12:01 PM GMT) on 12^th March 2020 and down by 5.31% versus the previous day closing price. Stock's 52 weeks High is GBX 2,811.38 and Low is GBX 1,127.00

Valuation Methodology

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. The company didn’t witness any material impact of COVID-19 on its performance.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from USD 233,591 million in FY16 to USD 344,877 million in FY19. Compounded annual growth rate (CAGR) stood at 13.87 per cent.

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 1,128.00 (as on 12^th March 2020, before the market close at 4:32 PM GMT), with lower double-digit upside potential based on 7.59x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Mondi Plc

Mondi Plc (LON: MNDI) is a global leader in packaging and paper and is fully integrated across the packaging and paper value chain, with key operations, are in central Europe, Russia, North America and South Africa. 

Financial Highlights – Financial Year 2019 (31^st December 2019, EUR, million)

(Source: Annual Report, Company Website) 

For the financial year ending 31^st December 2019, due to lower sales volumes and lower average selling prices, the revenue declined by 3 per cent to EUR 7,268 million versus EUR 7,481 million in FY2018. In the second half of the financial year 2019, the revenue declined by 7 per cent to EUR 3,497 million versus EUR 3,754 million in H2 FY2019. The underlying EBITDA declined by 6 per cent from EUR 1,764 million in FY2018 to EUR 1,658 million in FY2019. The underlying operating profit stood at EUR 1,223 million in the financial year 2019 versus EUR 1,318 million in FY2018, reflecting a decline of 7 per cent for the period. The reported operating profit increased by 2 per cent to EUR 1,221 million in FY2019, from EUR 1,192 million in FY2018. The PBT (profit before tax) was reported at EUR 1,103 million in FY2019. The basic earnings per share declined by 10 per cent to 171.1 euro cents in FY2019 from 189.1 euro cents in FY2018. The total ordinary dividend per share increased by 9 per cent to 83 euro cents in FY2019 from 76 euro cents in FY2018.

Share Price Performance

Daily Chart as of March 12^th, 2020, before the market close (Source: Thomson Reuters)

Mondi Plc shares were trading at GBX 1,344.50 at the time of writing before the market close (at 1:48 PM GMT) on 12^th March 2020 and down by 7.72% versus the previous day closing price. Stock's 52 weeks High is GBX 1,861.00 and Low is GBX 1,316.50.

Valuation Methodology

Conclusion

In the financial year 2019, the company has shown a decline in financial performance. Both the top-line and the bottom-line performance has declined for the period. The company enjoys a strong balance sheet and robust business model. Through the capital expenditure programmes undertaken, the company has continued in enhancing the ongoing cost competitiveness of its operations and delivering value accretive growth, helped by a focus on key industry trends of sustainability and e-commerce. Strong production capabilities, vertically integrated operations, a wide range of end markets, business performance of fibre packaging segment and focus on sustainability are the company’s key strengths, even as financial leverage and safety issues remain causes for concern. Rising demand for containers and packaging in Europe, acquisitions, the launch of new products, strategic investments and restructuring could provide growth opportunities to the company.

Over the course of 3 years (FY16 - FY19), the company’s revenue surged from EUR 6,662 million in FY16 to EUR 7,268 million in FY19. Compounded annual growth rate (CAGR) stood at 2.94 per cent.

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 1,324.50 (as on 12^th March 2020, before the market close at 2:05 PM GMT), with single-digit upside potential based on 11.11x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.). 

*All forecasted figures and peers have been taken from Thomson Reuters.

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