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Shell announces another buyback as profits beat forecasts

Since the Shell share price hit fresh record highs back in October, the slowdown in oil and gas prices since then has prompted a significant pullback with the shares sliding to a 5-month low in January.

A few weeks ago, Shell flagged that a better performance from its gas trading business during the last few months could mean that today’s Q4 numbers could be much better than expected.

This has been borne out in today’s Q4 trading update, bringing down the curtain on what Shell has described as “another quarter of strong performance”, and helping to lift the shares to a 3-week high in early trade, as well as putting further distance between itself and its sector peer BP, who report next week.

Integrated gas has seen profits of $3.96bn, comfortably ahead of forecasts, while the upstream business had also performed much better with profits of $3.09bn, helping to generate Q4 profits of $7.3bn comfortably beating consensus of $6.4bn, taking profits for the year to $28.25bn.

Even the chemicals division which has proved to be a drag over the last 12 months posted an unexpected profit of $83m in Q4, as did renewables and energy solutions which saw a better-than-expected Q4 profit of $155m, after the $57m loss in Q3.

The improvements here across the board would appear to justify the pivot we saw last summer from CEO Wael Sarwan where he pledged to focus on returns and “invest in the models that work” and “those with the highest returns”.

This appears to have been borne out in today’s better than expected Q4 profits numbers while it is notable that capex in renewables has been reduced to levels last seen in 2021.

While this is disappointing and will attract opprobrium from the usual activist suspects, Shell went on to say in its statement that most renewables and energy solutions were loss-making in Q4, as well as the whole fiscal year, which isn’t exactly an incentive to throw cartloads of money at them.

In response to today’s numbers Shell has said it will increase its dividend by 4% as well as commencing another $3.5bn buyback, which looks to be being funded by an increase in net debt to $43.5bn, an increase of $3bn from Q3.

Free cash flow also fell to $6.9bn, the lowest quarterly number during this fiscal year, and a sharp decline from a year ago when it was $15.5bn, although that probably isn’t too much of a surprise given how much lower energy prices are now compared to a year ago.

For 2024 Shell said it expects to see total capex of between $22bn and $25bn in line with 2023 capital spend which came in at $24.4bn.

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