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Royal Dutch Shell
Mannely Goncalves, Nguyet Ly, Jamila Panpinij, Anna Rausa
Company Description● Production of oil and natural gas.● Shell operates in three distinct segments including:
Upstream, Downstream, and Corporate.● 90,000 employees in more than 80 different countries
and territories.● Shell produces 3.3 million barrels of oil equivalent every
day. ● 44,000 Shell service stations worldwide. ● 30+ refineries and chemical plants.
Strengths Weaknesses
Strong market position
Vertically integrated operations
Strong exploration technological capability
Strong research & development capabilities
Violation of anti-corruption laws
Legal proceedings against Shell for oil spills in Nigeria
Opportunities Threats
Expanding GTL technology
Expansion of the Motiva Port Arthur refinery
The Prelude floating liquefied natural gas(FLNG) partnership
Impact of shale gas development on the Shell LNG business
Investments in Iran and Syria
Risks associated with wide geographic presence
Fluctuating prices of crude oil, natural gas, oil products,
and chemicals
SWOT Analysis
Ratio AnalysisLiquidity, Profitability, and Asset
Management
Firm Valuation: DDM
● Po = Do (1+g) / (r - g) ● Do = $1.72 (as reported in Shell’s 2012 annual report)● Constant growth rate = 2.1%
o expected growth rate from 2014 - 2020 (from Forbes)
Shell’s Dividend Growth Rate
● Ways of estimating g:o researched the rates predicted by different financial
analystso analyzed the company’s potential for growth in the
futureo calculated the dividend growth rate by computing the
growth rates over the past nine yearso using the formula g = ROE * plowback ratio
Rates from Different Reports
● Stock Analysis on Net = 7.38%● Motley Fool = 2.33%● Bloomberg = 2.67%● Yahoo Finance = 4.70%● Morning Star = 4.61%
Company’s Potential for Growth
● Shell’s strategy for 2013:o increase investments in new engines, explorations,
and drillingso expand into new territorieso seek out new growth opportunitieso expected to bring in $33 billion of net capital
investment in 2013 (compared to the $30 billion of net capital investment in 2012)
Year DPS Dividend Growth Rate
2012 1.72 2.38%
2011 1.68 0.00%
2010 1.68 0.00%
2009 1.68 5.00%
2008 1.6 11.11%
2007 1.44 13.39%
2006 1.27 12.39%
2005 1.13 5.61%
2004 1.07
g = ROE * plowback ratio
● most recent ROE (from Yahoo Finance) = 11.67%
● plowback ratioo DPS from 2012 = 1.72o EPS from 2012 = 4.25
● g = 0.1167 * [ 1 - (1.72/4.25)] = 6.95%
Estimation of g
● g ranges widely from 0% to 13.39%● We estimated g to be 5%
o Based on SWOT analysis and analysis of firm’s riskiness
o No increase in g for 3 years in a row until 2012
CAPM: r = rRF + (RPm)βi
● rRF = 3.81% (30-year U.S. Treasury Bond Yield)
● RPm = 5% (as recommended in class)
● βi = 1.042097
● r = 0.09 = 9%
Shell’s Valuation using DDM
● Po = Do (1+g) / (r - g)
o Do = 1.72o g = 5%o r = 9%o g = 2.1%
● Po = $26.17
Firm Valuation: Using Multiples
(Royal Dutch Shell’s “most recent” Earnings/Share)(Industry P/E ratio)
(6.74)(9.20)= $62.01