To provide further flexibility and financial resilience to manage the uncertainties caused by the novel coronavirus, Royal Dutch Shell Plc’s management has decided to cut the dividend. The decision by the company can be called unprecedented as it has come for the first time since World War II. The company is though looking forward to its position in a post coronavirus era and aims to be well-positioned on the path to economic recovery. In addition, the company has also announced that it would not pursue the share buyback programme.
As the global markets continue its meltdown driven by the outbreak and spread of Covid-19, the investors seem to be hurt both emotionally and financially. The world is under lockdown, and all the economic activities are presently seized. The duration of the lockdown cannot be determined in view of the gravity of the situation, and rather its impact on the global economy.
To exacerbate things further, the price of the oil went tailspin last week. As most of the countries are observing lockdown, the flights are grounded, vehicles are not plying, and the industries are at grinding halt. Therefore, the demand of the oil has gone down drastically. On the flip side, the major oil producers did not stop flooding the market with oil barrels. Some of the major oil producers were even facing a lack of storage capacity. Therefore, the lack of demand and oversupply factors contributed to the crude price turning negative.
Even the blue-chip companies are facing the heat of the pandemic. Some companies are on the verge of a shutdown, specifically, the air carriers. As the duration of lockdown remains uncertain, most of the companies are making strict policies to preserve cash and maintain liquidity to sustain business continuity models along with ensuring the well-being of their employees. Most of the companies have decided to suspend their dividend payments or axe them if necessary. On the same time, the WHO believes the worst has yet come.
However, FTSE 100, the broader equity benchmark index regained 6,000 points level after a long time. In addition, the crude also showed signs of recovering. Market experts believe that the economy could only be resurrected after the travel restrictions and lockdowns are removed. A few weeks ago, the Financial Conduct Authority (FCA) notified the public listed companies to postpone the release of their results for a few weeks. Amid all these circumstances, Royal Dutch Shell has released its results for the first quarter 2020.
Royal Dutch Shell Plc’s unaudited results for Q1 FY20
(Source: Company’s filings, LSE)
On 30th April 2020, the company released its results for the first quarter of 2020. Due to lower realised oil, gas and LNG prices, lower sales volumes and weaker realised refining and chemicals margins, the earnings attributable to shareholders excluding identified items plunged by 46 per cent to $2.9 billion in the first quarter of 2020 as compared with the first quarter of 2019.
The company’s profit was partly offset by lower operating expenses and favourable movements in deferred tax positions. After excluding the working capital movements, the Cash flow of the company from operating activities, stood at $7.4 billion in the first quarter of 2020.
The total dividends handed over by the company to its shareholders n the first quarter of 2020, were US$ 3.5 billion. For the first time in nearly 75 years, the company slashed its dividend. The company’s dividend per share was down by 66 per cent to US$ 0.16 for the first quarter of 2020 from US$ 0.47 for the first quarter of 2019.
Royal Dutch Shell has delivered strong operational performance across its business activities while ensuring the safety of its employees in these extremely challenging conditions. The company’s Integrated Gas and Marketing businesses brought resilience to its cash flows in this quarter while achieving robust results.
A few weeks ago, due to the ongoing macroeconomic catastrophe and commodity prices outlook, the company decided to go for cash preservation and improve its liquidity in order to conduct the smooth running of business operations. The asset quality, the resilient integrated business model and diverse portfolio of resources have enabled the company to wither the unprecedented storm caused by the novel coronavirus.
As the global economy continues to deteriorate and nothing much could be said about the macroeconomic outlook in the approaching months, the company is heavily reliant on its balance sheet and is taking a prudent approach to creating value in the long-term horizon.
Share Price Performance RDSA
On 1st May 2020, while writing at 11:03 AM GMT, Royal Dutch Shell shares were clocking a current market price of GBX 1,208.60 per share, down by 8.78 per cent from previous day price level. The share prices are plummeting across the industry due to crude prices going south. However, the crude would bounce back at far higher levels once the travel restrictions are eased, eventually, driving these shares upwards. This dip might also be triggered by selling in both crude and shares by panic-driven investors. The company’s market capitalisation was at £102,038.60 million at the time of writing.
On 7th May 2019, the shares of Royal Dutch Shell have touched a new peak of GBX 2,811.38 and reached the lowest price level of GBX 946.10 on 19th March 2020 in the last 52 weeks.
The stock’s traded volume was hovering around 2,171,201 at the time of writing before the market close. The volatility of the company’s stock was 6 per cent higher as compared with the index taken as the benchmark, as the beta of the company’s stock was recorded at 1.06 with a dividend yield of 10.32 per cent. The company had been paying dividends consistently throughout the different market cycles.
The company has strong fundamentals. The company has a diversified portfolio of assets and is keen on transitioning to green energy. As the world is devastated by the novel coronavirus, the outlook for this year might not be in resonance with the earlier guidance for 2020. However, with a resilient business model, lesser risks and solid dividend yield, this stock is likely to entice the investors now.
About Royal Dutch Shell Plc
Royal Dutch Shell Plc (LON: RDSA) is a Hague, Netherlands-based international group of energy and petrochemical company, which engages in exploring, producing, refining and marketing oil and natural gas. The group also manufactures and markets chemicals. Royal Dutch Shell PLC, incorporated in England and Wales, is the parent company of the Shell Group. Royal Dutch Shell operations are differentiated into three operating segments: Upstream, Downstream, and Integrated Gas and New Energies, and Downstream. The company’s shares are primarily listed on the London Stock Exchange and are constituents of the FTSE 100 index.