Are Shell shares a good investment?

Shell shares suffered when the company faced an unplanned outage at its Pernis refinery, but they've since made a comeback.

by | Last updated 28 Sep, 2023 | Energy

A large collection of oil drums stored at a port

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Shell Plc (LSE:SHEL) made headlines when the company faced an unplanned outage at its Pernis refinery. This is one of the biggest refineries in Europe and led to an immediate decline in the Shell share price. The cause of the disruption was an unexpected gas leak. Unfortunately, this news created panic in the whole energy market, raising concerns about the supply and pricing of petroleum products in the region.

While the refinery will continue to operate, the oil company will face some complications in operations in the near future. Let’s further discuss the probability of whether shell shares are a good investment or not.

Key points

  • In an unfortunate turn of events, Europe’s biggest oil refinery, owned by Shell Plc, faced an unplanned outage.
  • The company has commenced, as planned, a $3bn share buyback program.
  • The price forecasts, along with the amazing financial performance, leave no room for doubt that Shell shares are a good investment.

What does Shell do?

Shell is a leading oil refinery engaged in the production of oil and gas. It operates in 70 countries around the globe with a supporting employee force of more than 91,000.

How do the financials look?

In the recent quarterly report for its 2023 fiscal year ending in December, the oil company reported strong operational performance and cash flows despite a lower commodity price environment. This solid performance has enhanced distribution, with the company reporting $5.1bn in adjusted earnings with lower oil and gas prices and refining margins, lower volumes, and lower LNG trading & optimization results.

Amidst all, the company never stops rewarding its shareholders as management commenced, as planned, a $3bn share buyback program. In the second quarter, there was a 15% increase in shareholder payouts, increasing the dividend to $0.331 per share, pushing the yield closer to 4% at the time.

The bull case for the Shell share price

Shell’s growth plans are focused on maintaining a competitive portfolio and developing assets to meet the needs of customers for more affordable, reliable, and cleaner energy.

The company’s outlook for 2023 includes a cash capital expenditure (capex) in the range of $23bn to $27bn. Shell’s capital framework target is a distribution of at least 20% to 30% of cash flow from operations to shareholders. The group may choose to return cash to shareholders through a combination of dividends and share buybacks in the coming year.

Moving forward, some of the major projects of Shell are:

  1. Prelude FLNG: It is a floating liquefied natural gas (FLNG) facility that can now switch to run-on gas rather than diesel.
  2. LNG Canada: A major liquified natural gas processing facility located in Kitimat, British Columbia.
  3. Shell Polymers Monaca: A petrochemical complex in Western Pennsylvania.

The bear case for the Shell share price

While Shell is the world’s largest oil and gas company, it’s facing a very serious dilemma. The firm is in a predicament, facing the task of balancing the increasing demand for fossil fuels against the pressing need to address climate risks.

With the world shifting to sustainable energy sources, Shell is under pressure to reduce carbon emissions and transition to a cleaner energy future. Management is fully aware of this looming threat and has already made moves to address it in a similar fashion to its other competitors, such as BP.

However, as things stand, Shell is still firmly in the fossil fuel industry. And transitioning to alternative and renewable energy production will likely be an immensely complex challenge.

Shell share price prediction

Shell shares have been mildly volatile since the start of the year 2023. From a price of 2,326p, the share rose to 2,640p in the first. From here, the stock dipped to 2,200p and eventually reversed again. Since then, shell shares have been steadily rising. Year to date, the stock of the oil company has appreciated by almost 10%.

The majority of the analysts have offered a 12-month price target of 2,923.49p, with a high estimate of 6,261.72p and a low estimate of 2,409.54p. This average price target is a roughly 12% increase from the recent closing price of 2,596p. Assuming these forecasts are accurate, they suggest that investors may be looking at a decent entry point for investment.

Should I buy Shell shares today?

Shell has proven itself to be a leader in the energy market by acknowledging the need to transition to a more sustainable energy future. Within the years 2030 and 2035, the company plans to reduce the carbon intensity of its products by 20% and 45%, respectively.

Moreover, the price forecasts, along with the amazing financial performance, leave no room for doubt that Shell shares are seemingly a good investment. This is certainly backed up by the generous value return being handed to shareholders in the form of buybacks and dividends.

Of course, a good deal of this performance is tied to the energy cycle, which is currently on the rise. Needless to say, this will likely eventually reverse. However, timing a cycle isn’t easy. And as a long-term investor, I’m more interested in business potential a decade from now rather than a cycle from now. Therefore, I’m tempted to snap up some Shell shares for my portfolio today.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

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Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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