ROYAL_DUTCH_SHELL_PLC(RDSA.L)-2012-11-05.ppt

buy,deutsche bank markets research,rating buy europe netherlands,company royal dutch shell plc,date 2 november 2012 results,oil & gas integrated oils,reuters rdsa.l,bloomberg rdsa ln,exchange ticker lse rdsa,price at 2 nov 2012 (gbp) price target (gbp) 52-week range (gbp),2,175.00 2,475.00 2,402.00 - 1,970.50,no shocks, no surprises, just shell,lucas herrmann, aca,research analyst (+44) 20 754-73636 slow, steady, dependable,what to say? another classic quarter from shell with results demonstrating that the business is making progress in delivering the projects and cash flow but the detail also emphasising the extent to which certain aspects still have a long way to go. integrated gas - shells forte and future - read well with leadership in lng demonstrating its value. by way of contrast, the performance of e&p americas and the downstream suggest uncomfortable macro vulnerability. it may not be exciting. but, after the shenanigans,mark bloomfield, aca research analyst (+44) 20 754-57905 price/price relative,surrounding other sector names of late, the virtues of slow and (relatively) steady hold decidedly greater appeal. quarter up, quarter down . the bar wasnt set especially high. nevertheless, delivery of an above expected result at the net income level of $6.6bn (db $6.2bn) demonstrated useful performance driven in very large part by a much better outcome for shells integrated gas business than anticipated (read lng and pearl) which at $2.7bn accounted for over 50% of upstream income. strength here was, however,2600 2400 2200 2000 1800 1600 11/09,5/10 11/10 5/11 royal dutch shell pl,11/11,5/12,offset by the further erosion of profit in upstream americas which, given weak,ftse 100 index (rebased),gas prices, gom downtime and soft wcs pricing, fell into modest loss. in the downstream refining recorded its first quarterly profit of scale since 2008 ($1.4bn vs $1.1bn e), benefitting from the very strong margin environment and despite essentially weak end market demand. indeed, it was the uptick here,performance (%) absolute ftse 100 index,1m 0.8 0.7,3m -1.0 2.6,12m -0.1 8.1,that in essence drove the aggregate beat. we do not forecast its sustenance. assets on stream, a real dividend increase please looking ahead our expectation is that with pearl now ramping towards capacity q4 e&p profit and cash flow should see useful benefit. with the major,comparatives royal dutch shell plc (rdsb.l),gbp2,241.50,projects all seemingly running smoothly we would also hope that this affords,2011a,2012e,2013e,management the confidence to deliver an inflation-busting 4% dividend increase in 2013 and so put an end to the contentions around capital allocation that have been a large part of the investment debate this past year.,db eps (usd) p/e (x) ev/ebita (x),3.97 8.8 3.3,4.00 9.0 4.3,4.30 8.4 4.8,valuation & risk in a changing industry shell looks like a long term outperformer and one that still holds the potential for material profit upside with cash flow that should afford investors significant comfort through this time of economic duress. nor does it look expensive a 2013e fcfy of 7.5%, p/e of 8.4x and dy of 5% are hardly demanding. targeting a 10% premium to a 9x 2012 sector p/e we see fair value at c2475p. risks to our stance include gorgon cost blow-outs. forecasts and ratios,year end dec 31 db eps (usd) % change p/e (x) dividend yield (%),2010a 2.95 0.0% 9.9 5.8,2011a 3.97 0.0% 8.7 4.8,2012e 4.16 4.0% 8.4 4.9,2013e 4.55 5.8% 7.7 5.1,2014e 4.66 -2.4% 7.5 5.4,source: deutsche bank estimates, company data _ deutsche bank ag/london all prices are those current at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012.,5,2 november 2012 integrated oils royal dutch shell plc,model updated:02 november 2012,fiscal year end 31-dec,2009,2010,2011,2012e,2013e,2014e,running the numbers,financial summary,europe netherlands integrated oils royal dutch shell plc,db eps (usd) reported eps (usd) dps (usd) bvps (usd) weighted average shares (m) average market cap (usdm),1.89 2.04 1.68 22.3 6,128 161,213,2.95 3.29 1.68 24.1 6,125 178,523,3.97 4.98 1.68 27.2 6,212 215,289,4.16 4.47 1.72 29.6 6,274 220,268,4.55 4.72 1.80 32.5 6,321 221,899,4.66 4.95 1.88 35.5 6,321 221,899,reuters: rdsa.l,bloomberg: rdsa ln,enterprise value (usdm),131,813,143,191,140,447,150,347,159,045,166,593,valuation metrics,buy,p/e (db) (x) p/e (reported) (x),14.0 12.9,9.9 8.9,8.7 7.0,8.4 7.8,7.7 7.4,7.5 7.1,price (2 nov 12) target price 52 week range market cap (m),gbp 2,175.00 gbp 2,475.00 gbp 1,970.50 - 2,402.00 gbpm 136,469 usdm 220,268,p/bv (x) fcf yield (%) dividend yield (%) ev/sales (x) ev/ebitda (x) ev/ebit (x),1.37 nm 6.4 0.5 4.5 9.0,1.39 1.4 5.8 0.4 3.4 5.5,1.35 7.4 4.8 0.3 2.5 3.3,1.19 8.7 4.9 0.3 3.0 4.2,1.08 7.7 5.1 0.3 3.0 4.3,0.99 8.2 5.4 0.4 3.1 4.3,company profile,income statement (usdm),royal dutch shell is an integrated oil company. the company explores for, produces, refines, and markets oil and petroleum based products, is the largest producer of liquified natiral gas in the world and manufactures chemicals. the shares are in two forms, a and b, the a shares being those that were formerly traded as royal dutch on the amsterdam exchange and the b shares those that traded as uk listed shell transport & trading plc. the main difference between the two forms of equity relates to taxation on dividends, the a shares being dutch sourced and subject to withholding tax restrictions price performance 2600 2400 2200 2000 1800 1600,sales revenue gross profit ebitda depreciation amortisation ebit net interest income(expense) associates/affiliates exceptionals/extraordinaries other pre-tax income/(expense) profit before tax income tax expense minorities other post-tax income/(expense) net profit db adjustments (including dilution) db net profit,278,188 75,113 29,079 14,458 0 14,621 -542 4,976 0 1,965 16,044 8,302 200 0 12,518 -965 11,553,368,056 84,880 41,839 15,595 0 26,244 -996 5,953 0 4,143 29,391 14,870 347 0 20,127 -2,054 18,073,470,171 100,127 55,943 13,228 0 42,715 -1,373 8,737 0 5,581 46,923 24,475 267 0 30,918 -6,231 24,687,477,148 95,746 50,002 14,269 0 35,733 -1,926 10,197 0 6,139 39,947 21,812 267 0 28,064 -1,968 26,097,479,907 98,876 52,203 14,783 0 37,420 -1,640 10,256 0 6,753 42,533 22,699 274 0 29,815 -1,061 28,754,465,108 101,687 54,057 15,159 0 38,899 -1,354 9,939 0 7,428 44,973 23,338 283 0 31,292 -1,851 29,441,nov 09 may 10 nov 10 may 11 nov 11 may 12,cash flow (usdm),margin trends 12 11 9 8 6,royal dutch shell plc ftse 100 index (rebased),cash flow from operations net capex free cash flow equity raised/(bought back) dividends paid net inc/(dec) in borrowings other investing/financing cash flows net cash flow change in working capital,20,937 -25,191 -4,254 552 -10,717 0 -1,365 -15,784 1,386,26,173 -23,615 2,558 500 -9,979 0 1,888 -5,033 -5,929,35,241 -19,311 15,930 3,074 -10,888 0 -1,326 6,790 -6,752,45,469 -26,216 19,253 0 -10,899 0 -5,506 2,848 1,301,46,697 -29,614 17,083 0 -11,553 0 -19 5,511 -223,49,475 -31,342 18,133 0 -12,070 0 -29 6,033 878,balance sheet (usdm),09,10,11,12e,13e,14e,cash and other liquid assets,9,719,13,444,11,292,11,292,11,292,11,292,ebitda margin growth & profitability 40 20 0 -20 -40 -60,ebit margin,25 20 15 10 5 0,tangible fixed assets goodwill/intangible assets associates/investments other assets total assets interest bearing debt other liabilities total liabilities shareholders equity minorities total shareholders equity,131,619 5,356 35,049 100,429 282,172 35,033 109,004 144,037 136,431 1,704 138,135,142,705 5,039 37,223 113,781 312,192 44,332 118,080 162,412 148,013 1,767 149,780,152,081 4,521 43,482 122,473 333,849 37,175 125,671 162,846 169,517 1,486 171,003,171,206 5,721 41,409 122,870 352,498 34,327 129,552 163,879 187,103 1,516 188,619,187,898 5,821 39,852 122,877 367,740 28,817 131,918 160,735 205,457 1,548 207,005,205,932 5,921 38,337 121,268 382,750 22,783 133,807 156,591 224,576 1,583 226,159,09,10,11,12e,13e,14e,net debt,25,314,30,888,25,883,23,035,17,525,11,491,sales growth (lhs),roe (rhs),key company metrics,solvency,sales growth (%) db eps growth (%),-39.3 -59.0,32.3 56.5,27.7 34.7,1.5 4.7,0.6 9.4,-3.1 2.4,25 20 15 10 5 0,35 30 25 20 15 10 5 0,ebitda margin (%) ebit margin (%) payout ratio (%) roe (%) capex/sales (%) capex/depreciation (x) net debt/equity (%),10.5 5.3 49.2 9.5 9.5 1.8 18.3,11.4 7.1 39.5 14.2 7.3 1.7 20.6,11.9 9.1 29.7 19.5 5.6 2.0 15.1,10.5 7.5 23.9 15.7 6.6 2.2 12.2,10.9 7.8 24.3 15.2 6.7 2.2 8.5,11.6 8.4 24.0 14.6 7.3 2.2 5.1,09,10,11,12e,13e,14e,net interest cover (x),27.0,26.3,31.1,18.6,22.8,28.7,net debt/equity (lhs) lucas herrmann, aca,net interest cover (rhs),source: company data, deutsche bank estimates,+44 20 754-73636 page 2,,deutsche bank ag/london,2 november 2012 integrated oils royal dutch shell plc figure 1: summary of results q3 2012,year to december ($m) average brent oil price ($/bbl) production (kboe/d) fx rate,q3 11 113.01 3012 1.60,q2 12 108.29 3103 1.58,q3 12e 109.5 3082 1.58,q3 12 109.50 2982 1.57,q2/q1 1% -4% -1%,q2/q2 -3% -1% -2%,$ million,upstream international americas of which integrated gas downstream oil products chemicals,5435 4703 732 1903 1796 1144 652,4507 4448 59 2080 1296 847 449,4782 4328 455 1737 1471 1094 377,4888 4990 -102 2572 1731 1442 289,8% 12% -273% 24% 34% 70% -36%,-10% 6% -114% 35% -4% 26% -56%,other industry segments,total operating income,7231,5803,6253,6619,14%,-8%,corporate items:,interest income (expense) currency exchange gains/(losses) other - including taxation total minorities current cost net income exceptional items (gains on sales) stockholding gains/(losses) historic cost income dividends retained income average shares in issue eps - clean ccs ($) dps - per ord ($) eps - clean per adr (us$) dps - per adr (us$) eps - clean ccs (p) dps - (p) eps - clean ccs () dps - () dividend cover (%),-152 -270 221 -201 -51 6979 245 -270 6954 -2619 4335 6238 1.12 0.42 2.24 0.84 69.93 26.25 0.83 0.31 37.5%,-221 -107 292 -36 -48 5719 245 -1901 4063 -2698 1366 6249 0.92 0.43 1.83 0.86 57.92 27.22 0.72 0.34 47.0%,-119 13 76 -30 -53 6171 806 250 7226 -2706 4520 6269 0.98 0.43 1.97 0.86 6269 27.39 0.82 0.36 43.7%,-239 77 177 15 -75 6559 -432 1012 7139 -2706 4433 6269 1.05 0.43 2.09 0.86 66.64 27.39 0.87 0.36 41.1%,8% -172% -39% -142% 56% 15% -276% -153% 76% 0% 225% 0% 14% 0% 14% 0% 15% 1% 22% 7% -13%,57% -129% -20% -107% 47% -6% -276% -475% 3% 3% 2% 1% -6% 2% -6% 2% -5% 4% 5% 15% 9%,source: deutsche bank,deutsche bank ag/london,page 3,0,0,2 november 2012 integrated oils royal dutch shell plc figure 2: shell: cash flow estimates to 2015,cash flow forecast ($) net income post minorities,2009 12,567,2010 20,126,2011 30,895,2012e 28,298,2013e 29,715,2014e 30,992,2015e 32,175,adjustment for,minorities taxation interest income/expense depreciation, depletion & amortisation (profit)/loss on sale of assets share of profit of equity accounted investments dividends received from associates deferred taxation and other provisions other inc pension top-ups pre-w orking capital operating cash flow,118 9,297 1,247 14,458 (781) (4,976) 4,903 (1,925) (1,879) 33,029,347 16,384 842 15,595 (3,276) (5,953) 6,519 (1,934) (10) 48,640,205 23,009 1,164 13,228 (4,485) (8,737) 9,681 1,768 (949) 65,779,267 21,812 1,474 14,269 (2,378) (10,197) 11,726 1,238 (450) 66,059,274 22,699 574 14,783 (1,461) (10,256) 11,281 1,238 (100) 68,747,283 23,338 474 15,159 (1,451) (9,939) 10,933 1,238 (100) 70,926,291 23,728 374 15,785 (1,441) (9,939) 10,933 1,238 (100) 73,044,decrease/(increase) in net w orking capital,changes in inventories change in receivables change in accounts payable other cash flow from operating pre-tax interest received interest payable financing cost taxation paid operating cash flow ex working capital capital expenditure upstream gas & pow er oil products chemicals & other acquisitions/investment in associates proceeds from sale of fixed assets proceeds from sale/additions of associates proceeds from sale of financial assets changes in minority interests cash flow from investm ent free cash flow cfo-cfi fcf ex. wc,(2,434) (239) 349 (7) (2,331) 30,698 384 (902) (518) (9,243) 20,937 23,268 (26,516) (14,555) (5,915) (4,058) (1,988) (2,955) 1,325 1,633 (105) 62 (26,556) (5,619) (3,288),(1,996) (2,611) 2,568 (3,890) (5,929) 42,711 136 (1,312) (1,176) (15,362) 26,173 32,102 (26,940) (18,400) (5,000) (3,200) (900) (2,050) 3,325 3,591 (34) 381 (21,727) 4,446 10,375,(4,685) (4,482) 4,127 (1,713) (6,752) 59,027 136 (1,300) (1,164) (22,622) 35,241 41,993 (26,301) (18,551) (3,750) (3,200) (800) (1,886) 6,990 468 90 2 (20,637) 14,604 21,356,(430) (215) 1,996 (50) 1,301 67,361 160 (1,634) (1,474) (20,418) 45,469 44,168 (31,716) (24,000) (3,400) (3,500) (816) (6,000) 5,500 445 99 (50) (31,722) 13,747 12,445,(170) (84) 81 (50) (223) 68,525 160 (734) (574) (21,254) 46,697 46,920 (32,114) (24,000) (4,000) (3,200) (914) (500) 2,500 422 109 (50) (29,633) 17,064 17,287,912 450 (434) (50) 878 71,803 160 (634) (474) (21,854) 49,475 48,597 (33,842) (24,960) (4,500) (3,450) (932) (500) 2,500 401 120 (50) (31,371) 18,104 17,226,0 0 0 (50) (50) 72,994 160 (534) (374) (22,219) 50,402 50,452 (34,859) (25,958) (4,500) (3,450) (951) (500) 2,500 381 132 (50) (32,396) 18,006 18,056,dividends,to shareholders to minorities net cash flow bank cash/(debt) at start of year net cash flow share buy backs shares issued treasury shares bought fx other (fx translation) bank cash/(debt) at end of year,(10,526) (191) (10,717) (16,336) (8,109) (16,336) 525 27 0 0 (23,892),(9,584) (395) (9,979) (5,533) (23,892) (5,533) 500 0 (186) 187 (28,924),(10,450) (438) (10,888) 3,717 (28,924) 3,717 (1,106) 4,180 0 0 0 (22,134),(10,712) (187) (10,899) 2,848 (22,134) 2,848 (4,285) 4,285 0 0 0 (19,286),(11,361) (192) (11,553) 5,511 (19,286) 5,511 (4,544) 4,544 0 0 0 (13,775),(11,872) (198) (12,070) 6,033 (13,775) 6,033 (4,749) 4,749 0 0 0 (7,742),(12,407) (204) (12,611) 5,395 (7,742) 5,395 (4,963) 4,963 0 0 0 (2,347),source: deutsche bank,page 4,deutsche bank ag/london,-,2 november 2012 integrated oils royal dutch shell plc figure 3: shell: asset model at $100/bbl and $5/mmbtu lgas,upstream,com m ents,value ($ million),value (gbp million),2 p value/2p reserves reserves,% of total ev,value per share (p),argentina australia nws/domestic australia gorgon australia prelude brazil brunei cameroon,417 12,421 4,542 3,578 3,853 11,545 364,261 7,763 2,839 2,236 2,408 7,215 228,47 2702 889 862 277 930 29,8.9 4.6 5.1 4.2 13.9 12.4 12.4,0.1% 3.3% 1.2% 0.9% 1.0% 3.1% 0.1%,0.0 1.2 0.5 0.4 0.4 1.1 0.0,canada china denmark egypt french guiana gabon germany iraq ireland italy kazakhstan malaysia netherlands conc new zealand nigeria norw ay oman philippines qatar russia syria uae abu dhabi opco united kingdom united states gulf coast united states gulf of mex us northeast united states rocky mount us conc west coast venezuela concessions sub-total,muskeg and jackpine only in the sands significant potential exploration upside huge value in nlng this number w ill grow sharply,25,806 736 5,937 886 1,771 1,911 2,164 886 1,728 4,950 10,431 9,775 23,006 1,060 28,207 5,970 16,945 2,012 44,144 6,848 911 259 - 7,347 1,944 26,716 1,180 1,866 7,184 231 279,013,16,129 460 3,711 554 1,107 1,194 1,352 554 1,080 3,094 6,519 6,109 14,379 662 17,629 3,731 10,590 1,257 27,590 4,280 570 162 4,592 1,215 16,697 738 1,166 4,490 144 174,383,4145 109 369 174 112 86 187 2718 67 267 1657 1519 1915 106 3555 944 1275 162 3821 968 77 107 743 1574 1613 452 719 381 28 35585,6.2 6.7 16.1 5.1 15.7 22.2 11.6 0.3 25.7 18.6 6.3 6.4 12.0 10.0 7.9 6.3 13.3 12.5 11.6 7.1 11.8 -2.4 9.9 1.2 16.6 2.6 2.6 18.9 8.3 7.84,6.8% 0.2% 1.6% 0.2% 0.5% 0.5% 0.6% 0.2% 0.5% 1.3% 2.8% 2.6% 6.1% 0.3% 7.5% 1.6% 4.5% 0.5% 11.7% 1.8% 0.2% -0.1% - 1.9% 0.5% 7.1% 0.3% 0.5% 1.9% 0.1% 73.9%,2.6 0.1 0.6 0.1 0.2 0.2 0.2 0.1 0.2 0.5 1.0 1.0 2.3 0.1 2.8 0.6 1.7 0.2 4.4 0.7 0.1 0.0 0.7 0.2 2.6 0.1 0.2 0.7 0.0 2,766.4,refining,europe africa middle east asia pacific (ex show a) usa other western hemisphere marketing sub-total,7,600 331 848 4,000 9,924 1,392 32,934 57,029,4,750 207 530 2,500 6,202 870 20,584 35,643,2.0% 0.1% 0.2% 1.1% 2.6% 0.4% 8.7% 15.1%,75.4 3.3 8.4 39.7 98.4 13.8 326.5 565.5,pow er and others,ships lng contracts - dow nstream share,2,685 6,896,1678 4310,0.7% 1.8%,26.6 68.4,gas and pow er sub-total chem icals,largely regas. lng in upstream,4,431 14,012 18,372,2769 8,758 11483,1.2% 3.7% 4.9%,43.9 138.9 182.2,equity interests,woodside show a shell comgas total enterprise value adjusted end-2010 net debt net asset value market capitalisation discount to nav,24% interest 35% interest 18% interest,6293 2333 529 9155 377,582 20,878 356,704 224,405 -37%,3933 1458 330 5722 235,989 13,049 222,940 140,253 -37%,1.7% 0.6% 0.1% 2.4% 100.0% 5.5% 94.5%,62.4 23.1 5.2 90.8 3,744 207.0 3,537 2,225 -37%,source: deutsche bank,deutsche bank ag/london,page 5,page6,deutschebankag/london,royaldutchshellplc,integratedoils,2november2012,figure 4: shell: profit forecasts through 2015,$ m illion,2009,2010,q1 11,q2 11,q3 11,q4 11,2011,q1 12,q2 12,q3 12,q4 12e,2012e,2013e,2014e,2015e,upstream,international americas,7,418 1,070 8,488,12,489 1,953 14,442,3,833 805 4,638,4,267 1,153 5,420,4,703 732 5,435,4,449 658 5,107,17,252 3,