Shell Capital Markets Day: Not Enough To Close Gap With U.S. Peers, but Going in Right Direction

At Shell’s first capital markets day in two years, new CEO Wael Sawan and his team sent the right message—that returns would take priority over growth—but it was likely found wanting by investors. Although, we believe the key actions accompanying the message—reduced spending and increased distributions—are positive and crucial steps, they are unlikely to be enough to close the valuation gap with U.S. peers. Furthermore, the long-term outlook remains uncertain with most guidance items only covering through 2025. However, we believe the new team has Shell heading in the right direction and places the company as one of the more compelling options among European integrated oils. Incorporating the updated items into our model, leaves our fair value estimate and moat rating unchanged. Shares are only trading at a modest discount, but they are supported by a relatively high shareholder yield.