Volatile second quarter has impact on Shell’s (RDSB) bottom line

Oil producer’s shares dropped 5% following the results, contributing to the FTSE100’s declines.

Article updated: 1 August 2019 10:00am Author: Helal Miah

  • Shares in the largest company in the FTSE100 drop by nearly 5% in early trading.
  • Today’s results demonstrate one bad quarter in a series of improving figures, so investors should remain confident.
  • Possible tailwinds such as better average oil prices along with an attractive dividends makes Royal Dutch Shell still a Buy.

Along with the Federal Reserve’s indications last night that another interest rate cut is looking a little less likely, Royal Dutch Shell is the other main contributor to the FTSE100’s declines this morning. The largest company in the index is down by nearly 5% this morning, it seems as though we have got used to improving trading numbers from the oil mega-caps and therefore expected too much from these results. Factors such as lower oil, gas and LNG prices and lower margins in chemicals meant Q2 earnings were just under $3bn for the second quarter, roughly half of what they earned in the first quarter of this year and the comparable quarter last year and materially below expectations.
This is one bad quarter following a series of improving figures and investors should take heart from the operating cash flow still remaining fairly strong. Shell, like its UK rival BP, is in a far healthier condition than it was a few years ago having made deep portfolio restructurings and cutting back significantly on costs.

Our View on Royal Dutch Shell - Buy

Better average oil prices in the next quarter could easily reverse the disappointment of the latest earnings. The group will continue to be a significant dividend payer which has launched the next tranche of its share buyback programme and in light of these factors, we continue to rate the company as a ‘Buy’ for income seeking investors.

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Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.