Successful companies don’t stand still. They’re always evolving. Today, I’m looking at the changes taking place at FTSE 100 oil supermajor Royal Dutch Shell (LSE: RDSB) — and what they mean for investors.
New CEO; new agenda
Ben van Beurden, a Shell veteran of 30 years, moved up to the chief executive’s seat at the start of this year after Peter Voser stepped down.
Voser had overseen a massive capital investment programme in his close to five years as Shell’s CEO, culminating in $46bn of capex during 2013. However, the year saw profits plummet 39%, and new boss van Beurden explained to shareholders:
“The landscape the company had expected has changed. Factors such as the worsening security situation in Nigeria in 2013, and delays to non-operated projects in several other countries, have altered the outlook. Oil prices remain high globally, but North America natural gas prices and associated crude markers remain low, and industry refining margins are under pressure”.
Against this backdrop van Beurden was quick to set his agenda, promising investors “rigorous capital discipline” and to “strengthen operational performance”. Shell will no longer be going all out to increase volumes, but instead will be focusing on the most profitable growth projects within its portfolio, and disposing of less attractive assets.
Van Beurden has cut the investment programme for 2014 to $35bn and is targeting $15bn of divestments for 2014-15. The strategy is “designed to deliver through-cycle growth in cash flow, to drive competitive returns and a growing dividend” — in short, to create value for shareholders.
And Shell hasn’t been hanging around. We’ve seen exits from Australia and Italy downstream, Wheatstone LNG in Australia, and US gas-to-liquids. Disposals for the year to date have already raised $4.5bn. Van Beurden already has the bit between his teeth.
Looking to the future
Shell’s dividend did little more than tread water during Voser’s time at the helm, but the board lifted the 2013 payout by 5%, and van Beurden expects to increase this year’s first-quarter dividend by over 4%.
With the new boss’s focus on improving cash flow and delivering competitive returns for shareholders, analysts have penciled in steady mid-single digit dividend increases for the years ahead, supported by earnings growth of a similar order after a forecast 30% bounceback from 2013’s disappointing drop.
Van Beurden’s vision, and the improving dividend outlook, have pushed the shares up to a recent 52-week high of 2,420p. Nevertheless, at that price, the forward dividend yield of 4.7% is still well above the FTSE 100 average of 3.2%, while the P/E of 11.7 is on the value side of the Footsie’s long-term historical average of 14.