Stock of the Week: Shell

VIDEO: It's been a remarkable turnaround for Shell in two years, but calls for a windfall tax are growing

James Gard 7 February, 2022 | 9:31AM
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James Gard: Welcome to Morningstar.

Shell was one of the biggest UK companies to report last week. It’s been quite the turnaround at the oil company, which now has a new name and stock market ticker after moving its HQ to London.

From an investor’s point of view, all the numbers are moving in the right direction. Quarterly profits are the highest since 2014, the dividend is set to be increased, and share buybacks will hit $8.5 billion in the first half of this year.

This is such a turnaround from 2020 that shareholders would be right to question whether this perfect storm can continue.

What are the risks to Shell going forward? On the day that the company announced $19 billion of profit, Britons were told their energy bills would rise more than 50%.

So MPs have started talking again about windfall taxes on oil companies and that clamour is likely to grow. Should Shell grasp the nettle and launch new green initiatives to placate its critics? The company did say that is increasing is spending on renewables to around 50% by 2026. Other than a cash grab from government, there’s also the risk that oil prices fall back again.

Morningstar analyst Allen Good has left Shell’s fair value at £19 per share after the results, but shares are now trading above £20.

For Morningstar, I’m James Gard.

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James Gard

James Gard  is senior editor for Morningstar.co.uk

 

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