Image source: Olaf Kraak via Shell plc
The Shell (LSE: SHEL) share price jumped 3% Friday morning (2 May) on the back of first-quarter results for fiscal 2025.
CEO Wael Sawan said: “Our strong performance and resilient balance sheet give us the confidence to commence another $3.5bn of buybacks for the next three months.“
The company posted adjusted earnings for the quarter of $5.58bn. That beats the $3.66bn reported for the final quarter of 2024. But it falls 28% short of the first quarter last year, which brought in $7.73bn.
Shell set the Q1 dividend at 35.8 US cents per share, or 26.9p at the current exchange rate. The actual sterling and euro amounts are due to be announced on 9 June. It falls in line with the 4.6% dividend yield prediced for the full year.
The new $3.5bn share buyback makes this the “14th consecutive quarter of at least $3bn in buybacks.”
Cash cow again?
Before the focus a few years ago on renewable energy, investors saw Shell as something of a cash cow. For a long time it was really hard to see the oil and gas business not pouring billions into investors’ pockets year after year.
This time, renewables power generation capacity reached a modest 7.5 gigawatts, slightly up on the previous quarter’s 7.4 gigawatts.
The company equivocated on its previous 2050 net-zero emissions target. It said it can’t plan for that right now as “this target is outside our planning period.” Shell’s planning horizon, it seems, is set at no further ahead than 10 years.
“In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans and outlooks to reflect this movement,” the update said. It added: “However, if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target.“
It seems we’re back to the old ‘pump, pump, pump’ days. That has to be good for short-term cash outlook. But investors need to remain keenly aware that the long term isn’t going away.
Oil price shock
Despite its strong shareholder returns, Shell is under pressure from falling oil prices. Brent Crude is trading at around $62 a barrel right now. That’s below the $75 average for the quarter. And it falls well short of the $87 from the same quarter last year.
But with the Shell share price still below its pre-Covid levels, does this mean we have a buying opportunity now?
CFO Sinead Gorman seems to think so. In a call, she said: “If my share price falls and I already believe the share price was undervalued, I therefore have an even better ability to allocate capital there and buy back even more shares.“
We’re looking at a forecast price-to-earnings (P/E) ratio of nine, falling to around 7.5 based on 2027 forecasts.
On the face of it that might look cheap. I definitely think it’s one to consider now, but we do need to balance it with long-term hydrocarbon fuel pressures, which haven’t gone away.
