Royal Dutch Shell PLC

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

Recent News
On 31^st October 2019, the company announced the commencement of trading in the next tranche of its share buyback programme.

Financial Highlights (Q3 FY2019 and 9M FY2019, US$ million)

(Source: Company Filings, LSE)

During the nine months of the financial year 2019 under consideration, the group’s revenue stood at $260,871 mn, which was 8.83% below against the $286,151 mn recorded in 9M FY18, led by a dip in the revenue from Integrated Gas, Downstream, and Corporate segments during the period. The total revenue and the other income stood at $267,041 mn in 9M FY19 versus $291,930 mn in 9M FY18. The company’s total expenditure declined to $244,346 mn in 9M FY19 from $264,216 mn in 9M FY18. The PBT (Profit before tax) declined by 18.11 per cent from $27,714 mn in 9M FY18 to $22,695 mn in 9M FY19. The company’s profit for the year attributable to the shareholders stood at $14,878 mn in 9M FY19 as against $17,762 mn in 9M FY18. The basic earnings per share for 9M FY19 was $1.84 versus $2.14 in 9M FY18. The diluted earnings per share for 9M FY19 was $1.83 versus $2.12 in 9M FY18. For the nine months of 2019, the dividend per share stood at $1.41 and remained the same from the corresponding period of the last year, while in Q3 FY19 the dividend per share was $0.47. Cash flow from operating activities surged by 3% to $31,913 million in 9M FY19 against the same period in 2018.

Share Price Performance

Daily Chart as at October-31-19, before the market closed (Source: Thomson Reuters)

On 31st October 2019, Royal Dutch Shell PLC shares were trading at GBX 2,244 at the time of writing before the market close (at 9:28 AM GMT), down by 3.65% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,811.38/GBX 2,209.50. The company's stock beta was 0.89, reflecting the lower volatility as compared to the benchmark index.

Valuation Methodology


Conclusion
As on October 31, 2019, the group announced the third quarter and nine-months update. During the fourth quarter of 2019, the group's Integrated gas production is expected to be between 920 and 970 thousand barrels of oil per day, and LNG liquefaction volumes are expected to be between 8.8 and 9.4 mt. Upstream Production is expected to be between 2,650 and 2,800 thousand barrels of oil equivalent, and Refinery availability would be in between 87% to 92%, respectively. Oil Products sales volumes are anticipated to be in the range of 6,650 – 7,050 thousand boe/d. Chemicals manufacturing plant availability is estimated to be in the range of 81% – 86%. For the full year 2019, the cash capital expenditure is anticipated to be around the lower end of the $24 – $29 billion range.

In Q3 FY19 and 9M FY19, the company continued to deliver robust cash flow and earnings.The company earnings show the resilience of the market-facing businesses and their ability to capitalise on market conditions, with robust trading. The intent to buy back $25 billion in shares and decrease net debt stays unchanged.

Based on company’s ability to generate decent cash flows and the valuation done using the above method, we have given a “Buy” recommendation at the current price of GBX 2,244 (as on 31st October 2019, before the market close) with single-digit upside potential based on 6x NTM Price/Cash Flow (approx.) on FY19E cash flow per share (approx.).
 

Anglo American PLC

Anglo American Plc (AAL) is a London, United Kingdom-headquartered international mining group, with operations in North and South America, Southern Africa, and Australia. Its principal operations include mining, exploring and processing of metal and minerals globally, with a portfolio including metals such as copper, platinum, diamonds, iron, nickel, manganese and thermal coal.

On 23^rd January 2020, the company will announce the Q4 FY2019 production report.

Production Report for the third quarter ended 30 September 2019 (as on 22^nd October 2019)
The group reported that the total production for the quarter has surged by 4 per cent year on year,majorly driven by the continued expansion at Minas-Rio and a strong production period at metallurgical coal. The diamond production reduced by 14 per cent year on year at 7.4 million carats for the third quarter of 2019 as compared to 8.7 million carats in the third quarter of 2018. Copper production also decreased by 8 per cent year on year. Metallurgical coal production surged significantly by 22 per cent year on year from 5.4 Mt in Q3 FY18 to 6.6 Mt in Q3 FY19.

Financial Highlights (for the six months ended 30 June 2019, US$ million)

(Source: Interim Reports, Company Website)

For the first half of the financial year 2019, the revenue rose by 8 per cent over the year to $14,772 million, up from $13,698 million in H1 2018. Underlying earnings per share rose by 28 per cent to $1.58, helping the company to announce a 27 per cent increase in the dividend to $0.62.

Share Price Performance

Daily Chart as at October-31-19, before the market closed (Source: Thomson Reuters)

On 31st October 2019, Anglo American PLC shares were trading at GBX 1,966 at the time of writing before the market close (at 10:52 AM GMT), down by 1.6% against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,294/GBX 1,529.80. The company's stock beta was 1.56, reflecting the higher volatility as compared to the benchmark index.

Conclusion
The Operating Model implementation by the group is continuing to deliver improvements, as the group focuses on efficiency and productivity, which can be seen in the improved margins of the group. Despite uncertainty for the diamond jewellery business globally, the company had shown decent growth for the period. The demand for polished diamonds has increased from Chinese and US retailers. The US-China trade war has resulted in stock market volatility and slower economic growth which is negatively impacting the company’s operational performance. As the country operates in a diverse range of countries, uncertainty and adverse changes to mining industry regulation, legislation, or any other political changes can result in a lack of confidence in making investment decisions and can adversely affect the operations or performance of the group.

For the quarter, the production increased by 4 per cent. De Beers production is less, as anticipated, with the transition of Venetia and Victor mine now at the end of its life. The company stays on track to provide full year 2019 production targets, through a surge in the production guidance at Minas-Rio.

Based on the decent prospects, we have given a "Hold" recommendation at the current price of GBX 1,966 (as on 31^st October 2019, before the market close).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters. Currency exchange rate taken for 1 USD = 0.772717 GBP.

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