Has Shell’s Valuation Risen?



Shell’s valuations

Royal Dutch Shell’s (RDS.A) forward valuation shows mixed signals compared to the peer average. Let’s start with its forward PE ratio.

Shell is trading at a forward PE of 11.7x, below the peer average of 13.5x. Shell’s peers Total (TOT), Equinor (EQNR), and Petrobras (PBR) are also trading below the peer average. TOT, EQNR, and PBR are currently trading at the forward PE ratios of 10.7x, 12.3x, and 11.1x, respectively.

Moving onto EV-to-EBITDA (enterprise value-to-EBITDA), Shell is currently trading at a forward EV-to-EBITDA ratio of 5.2x, above the peer average of 5.0x. Shell’s peers ExxonMobil (XOM), Chevron (CVX), and Suncor Energy (SU) are trading above the peer average at 7.4x, 6.3x, and 7.0x, respectively.

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So, what do Shell’s valuations imply?

Shell is currently trading below the forward average PE ratio but above the forward average EV-to-EBITDA ratio—better than the situation a couple of years ago, wherein both ratios stood below the peer average. This better position is likely the result of the company’s strengthening financials.

Shell’s debt position strengthened in 2018. In the year, its total debt fell $9 billion year-over-year. Also, Shell’s total debt-to-total capital ratio and net-debt-to-EBITDA ratio stood below their respective industry averages, indicating a favorable scenario.

Shell’s cash flows have also risen. In 2018, the company’s cash flows from operations stood at a surplus after accounting for its capex and dividend outflows. It’s no surprise that the company has announced the third tranche of its $25 billion share buyback program, which we discussed earlier in the series.

Overall, Shell’s strengthening debt and liquidity positions have been supporting its valuations.

For more on Shell, read Shell Strengthened Last Year: Where’s It Headed? The series talks about improvements in Shell’s position due to its strong upstream portfolio, robust strategy, and vital downstream segment.


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