Stock of the week: Royal Dutch Shell
It appears that Royal Dutch Shell is exploring a future beyond oil with group’s moves to buy ‘NewMotion’, a Netherlands based company, which owns 30,000 electric-vehicle charging points across Western Europe. Shell told the market that this move will complement the company’s existing roll-out of charging stations and there were no plans at this stage to integrate the two.
Shell is known for finding and refining oil, and is the largest listed company in the UK. In recent years the company has been going through some major restructuring programs, which should lead to cost efficiencies, increased production capacity and higher cash flows. However, interested investors will know that the recent lower oil price environment has led the company to rein back on major investment programs.
It is reassuring, however, that Shell’s first half 2017 profits jumped to just over $5bn versus the $1bn in the first half of 2016. It showed that recent trends of better average oil prices, better operational performance, significantly reduced operating expenses and stronger conditions in the chemicals and refining sector have continued.
The oil price trending higher since June and potential for further restructuring benefits and new production sites in 2018, could all help restore market confidence. Moreover, the income is attractive but investors should be wary that any fall in the oil price could once again raise questions about the company’s ability to maintain its dividend.
We continue to recommend Royal Dutch Shell as a ‘buy’ for investors seeking income and willing to accept a low to medium level of risk.