Chart in Focus: Shell’s Valuations



Shell’s valuations show a mixed trend

In the previous part, we studied Royal Dutch Shell’s (RDS.A) institutional holding changes. In this part, we will consider Shell’s forward valuations in comparison to its peers. Let’s begin with its forward PE (price-to-earnings) ratio.

Shell is trading at a forward PE multiple of 15.6x, below its peer average of 16.5x. Shell’s peers BP (BP), Total (TOT), Petrobras (PBR), and YPF (YPF) are trading below the peer average. BP, TOT, PBR, and YPF currently trade at forward PE multiples of 15.3x, 13.3x, 12.2x, and 13.9x, respectively.

Shell (RDS.A) is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 6.0x, above the peer average of 5.5x.

Shells’ peers ExxonMobil (XOM), Chevron (CVX), and PetroChina (PTR) also trade above the peer average at 8.4x, 7.3x, and 6.1x, respectively.

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Behind Shell’s mixed valuation trend

Shell trades below the forward average PE multiple but above the forward average EV-to-EBITDA multiple. Shell is trading below the forward PE multiple primarily because the company saw a sharp rise in its leverage in the past few years. resulting from the acquisition of the BG Group. This acquisition came at a time when oil prices were at multiyear lows.

However, oil prices have revived from the trough, and benefits and synergies from the acquisition have started pouring in. After the latest earnings, it was apparent that Shell’s leverage and liquidity positions have begun improving.

Shell’s robust Upstream segment has a series of projects lined up, adding to the company’s hydrocarbon production. Recuperating financials and expectations of production growth have begun building in Shell’s valuations. This could be the reason for its forward EV-to-EBITDA multiple to cross over its peer average.


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