Royal Dutch Shell Plc (RDSA)

Royal Dutch Shell Plc (RDSA) is a Hague, Netherlands-based international group of energy and petrochemical company, which engages in exploring, producing, refining and marketing oil and natural gas.

Recent News
As on September 30, 2019, the group reported third-quarter update. During the third quarter of 2019, the group's Integrated gas production is expected to be between 930 and 960 thousand barrels of oil per day, and LNG liquefaction volumes are expected to be between 9.0 and 9.30 mt. Upstream Production is expected to be between 2,600 and 2,650 thousand barrels of oil equivalent, and Refinery availability would be in between 90% to 92%, respectively.

Financial Highlights: H1 FY19

Source: Company filing

During the first half under consideration, the group’s revenue stood at $174,278 mn, which was 6.4% below against $186,000 mn recorded in H1 FY18, led by a dip in the revenue from all reportable segments during the period. The total revenue and the other income stood at $177,499 mn in H1 FY19 versus $190,382 mn in H1 FY18. The company’s total expenditure had declined to $163,176 mn in H1 FY19 from $172,405 mn in H1 FY18. The PBT (Profit before tax) declined by 20.33 per cent from $17,977 mn in H1 FY18 to $14,323 mn in H1 FY19. The company’s profit for the year attributable to the shareholders stood at $8,999 mn in H1 FY19 as against $11,923 mn in H1 FY18. The basic earnings per share for H1 FY19 was $1.11 versus $1.44 in H1 FY18. The diluted earnings per share for H1 FY19 was $1.10 versus $1.42 in H1 FY18.

Stock Performance
 
Daily Price Chart (as on October 15, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, 01:26 PM GMT), shares of RDSA were quoting at GBX 2,285.5 and declined marginally against the previous closing price. In the year-ago period, its shares have registered a 52w high of GBX 2,811.38 and a 52w low of GBX 2,209.50. In a year-ago period, its shares have delivered a negative price return of approximately 7.6% and down by approximately 11.5% in the past three months, respectively.

Conclusion
The company has increased its competitive portfolio for the period with the introduction of first LNG cargo from Prelude and Appomattox and expect to generate added cash in future. The company’s customer-facing and Upstream businesses are flexible and will contribute to generating cash flows to meet FY2020’s outlook. However, at the current trading level, the stock is down-trending as it was quoting below the 200-day and 50-day simple moving average price, but the 14-day Relative Strength Index hovering in a neutral zone, which indicates some pull-back could take place in near-term.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 2,285.5 (as on October 15, 2019, before the market close).
 

National Grid PLC (NG)

United Kingdom-based National Grid Plc (NG) is a global electricity and gas company and is engaged in the transmission and distribution of electricity and gas. The company operates in the UK, US and North Eastern countries.

Recent News
In the exchange filing made by the group as on October 02, 2019, the group confirms that the Massachusetts Department of Public Utilities (DPU) has issued its rate case order for the group’s Massachusetts Electric business. The order approves a 5-year rate plan with new rates effective from October 01, 2019. It comprises an allowed Return on Equity of 9.6% on an equity ratio of 53.5% and a revenue increase of $38 mn. This is another successful step in the group’s regulatory strategy and strengthening the significant ongoing investment across their United States business.

Financial Highlights: FY19

Source: Company filings

During the year under consideration,  the group’s statutory operating profit plummeted by 18% to £2,870m from £3,493m reported in the year-ago period, and on an underlying basis, operating profit was down by 2% to £3,427m, driven by lower return of certain UK Gas Transmission revenue allowances and the impact of tax reform on US regulated revenues. Group’s statutory pre-tax profit slumped by 31% to £1,841m from £2,660m, and on an underlying basis, the group's pre-tax profit slumped 3% to £2,474m. Underlying Earnings per share surged by 5% to 58.9p, whereas statutory earnings per share of the company plunged 57% to 44.3p/share.

Stock Performance
 
Daily Price Chart (as on October 15, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close at 02:29 PM), shares of NG were trading marginally lower against the previous closing level at GBX 889.5. In the year-ago period, its shares have registered a 52w high of GBX 894.90 and a 52w low of GBX 744.50. In a year-ago period, its shares have delivered a price return of approximately 12.24% and up by approximately 15% in the past three months, respectively.

Conclusion
The current trend in the company’s stock is bullish and at the current trading level, the stock was quoting well above its short-term and long-term support level. Also, the 14-day Relative Strength Index in the stock was hovering in a neutral zone and strengthening the upside potential.

Also, amid growing uncertainties over the global recession and Brexit related uncertainties, the utility stocks are considered as a safer investment picks during the tough times, because consumers may reduce their spending on discretionary items, but they will keep paying their electricity bills, water bills and other utility payments.Also, despite a decent surge in the stock price it recorded over the past couple of months, the dividend yield of the company stood at 5.25%, which is substantially higher against the FTSE 100 index dividend yield and is a significant fundamental indicator from an income investors standpoint. 

Therefore, based on the above rationale and current trend in the stock price, we have given a "Hold" recommendation at the current price of GBX 889.5 (as on October 15, 2019, before the market close).

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