Forecasts for BP have been pared back over the past 12 months, but at rival Royal Dutch Shell (LSE: RDSB) we’ve been seeing the opposite trend.
Sure, 12 months ago the great and good of the City were forecasting earnings per share (EPS) of 247p for the year ending 2014 and six months later than had fallen to 215p. But since then we’ve had a rise back up to the latest consensus of 227.5p per share.
Over the same six-month period, predictions for 2015 have been firmed up slightly from 219.6p per share to 220.3p.
Dividends, too
Dividend forecasts have have followed a similar pattern. For this year we started with an estimate of 116p twelve months ago, which dropped to 112.5p six months later, but then recovered to a current consensus of 117.2p — it’s actually improved over 12 months. For 2015, a dividend consensus of 115p six months ago has been upped to 120.3p now — it’s way too soon for that to be seen as anywhere near accurate, but the positive sentiment must be welcomed by shareholders.
What’s especially encouraging is that all of this has happened against a background of falling oil prices — we’re currently at at four-year lows of around $80 per barrel, down from around $115 just a few months ago. So the underlying assessment of Shell as a company is even stronger than forecasts suggest.
On top of that, the consensus of analysts’ recommendations is overwhelmingly bullish. Out of a sample of 39 forecasting, a full 19 are putting out Strong Buy recommendations with another three on a mere Buy. On the bearish side there’s only one solitary broker urging us to Sell, with the remaining 16 sitting on the Hold fence.
That’s bullish!
That is about the most bullish consensus for a FTSE 100 company there is right now, but is it realistic?
Well, Shell’s Q3 earnings on a current cost of supplies (CCS) basis came in at $5.3bn, up from $4.2bn in the same quarter a year previously. Underlying earnings, excluding specific one-offs and also on a CCS basis, rose 31% from $4.5bn to $5.8bn.
Shell achieved that by pulling off an unusual combination of increasing its like-for-like production volumes while lowering exploration costs — for some time it has been divesting lower-margin assets while retaining more profitable ones, much to the credit of chief executive Ben van Beurden who has committed himself to improving shareholder returns.
Buy or sell?
So are Shell shares worth buying today? Over the past 12 months we’ve seen a modest price rise to 2,302p. That beats the FTSE’s fall of half a percent, but I really don’t think it fairly reflects Shell’s potential.
On a forward P/E of only 10 and with a forecast dividend yield of 5%, I’m with the analysts who see Shell as a Strong Buy candidate.