20th January 2016
Shares in Shell fell by nearly 6% in early trade following a warning by the company that its profits were likely to be below analysts’ expectations. Graham Spooner, investment research analyst at The Share Centre, explains what this means for investors…
This morning, Royal Dutch Shell announced that it expects earnings adjusted for one-time items to be in the region of $1.6 to $1.9bn when it announces its Q4 results on the 4 February. Investors should note that the majority of analysts’ are expecting results to be $1.8bn as the average estimate. Royal Dutch Shell also said this morning that it remains confident of declaring $1.88 per share dividend for 2015 and at least the same in 2016.
Despite these numbers, the dive in the price of oil is taking its toll on all oil companies. Just like its peers, this company has been reporting significantly lower profits over the last few quarters. Investors should appreciate that Royal Dutch Shell has made a commitment to reduce costs and improve efficiency which should be supportive of its balance sheet.
As a result of the above factors, we recommend Royal Dutch Shell as a ‘buy’ for the contrarian investor looking to benefit from a longer term recovery in the oil price. The income is attractive but investors should be aware that there is a possibility of the dividends being cut. We therefore have the opinion that the risk level of the business has increased to a medium level. Investors would be best advised to drip feed into the stock in the current climate.