Shell plc (SHEL) Ordinary EUR0.07

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Shell’s fourth-quarter revenue fell from $66.3bn to $64.1bn with declines in upstream, chemicals and products, and marketing more than offsetting growth elsewhere.

Underlying net profit fell from $3.7bn to $3.3bn. That was below consensus forecasts of $3.5bn with most of the miss due to weaker gas prices as well as softer marketing margins.

Free cash flow was down by about half to $4.3bn, impacted by lower profitability and payment for emissions certificates. Net debt was up $6.9bn to $45.7bn.

Shell declared a $3.5bn quarterly buyback and raised the fourth quarter dividend 4% to $0.372 per share.

Capital expenditure in 2026 is expected to total $20bn-$22bn, in-line with last year.

The shares fell 1.9% in early trading.

Our view

Shell’s fourth quarter reflected a challenging picture in oil extraction, refining and distribution, dragging slightly on sentiment which has been relatively strong so far this year.

However, Shell's not a one-trick pony. It’s the market leader in terms of Liquefied Natural Gas (LNG), which may benefit from growth drivers such as growing power demand from Artificial Intelligence. And in volatile times, its trading and optimisation division’s operations can be very lucrative.

In distribution, Shell is particularly well placed to provide lower-carbon options to motorists. Its global network of 47,000 service stations is the largest of all the oil majors. Its EV charging footprint has been growing rapidly, but the focus is changing to profitability rather than scale.

Strong financials have enabled it to self-fund the significant organic investment required to develop new projects while maintaining distributions to shareholders. Shell invests over $20bn each year across its business, and that’s set to stabilise at between $20-22bn out to 2028. New projects should bring more than one million barrels of oil equivalent production onstream by 2030. But as with all natural resource developments, there’s the potential for things to go wrong.

A strong balance sheet and renewed efficiency drive underpins an increase in targeted returns to shareholders of 40-50% of operating cash flow over the cycle. Currently, that’s allowing annual dividend increases of 4% and continued buybacks of around $3.5bn per quarter, but no payouts can be guaranteed in future quarters.

We’re not too concerned about the recent dip in profitability and cash flow. Ongoing cost savings should go some way to steadying the ship, but if oil & gas prices and with them financial performance stay depressed for too long, then management may have to rethink its spending priorities.

Like the rest of the sector, Shell’s fortunes remain linked to movements in commodity prices. However, strong cash generation, a relatively robust balance sheet, and a well-run trading division mean we think it’s relatively well placed to cope with some volatility in the oil price, and one of the stronger names in the sector.

Its consistent focus on shareholder value has seen the valuation move above the long-term average. While we think that looks broadly sustainable, the scope for upside looks limited unless commodity prices rise above their current levels for a reasonable length of time.

Environmental, social and governance (ESG) risk

Environmental concerns are the primary driver of ESG risk for oil and gas producers, with carbon emissions and waste disposal being the main issues. Health and safety, community relations and ethical governance are also contributors to ESG risk.

According to Sustainalytics, Shell's management of material ESG issues is strong.

This reflects a change in its business mix over recent years towards lower carbon fuels such as gas and LNG, and the exit from some of its more controversial assets. Despite Shell's numerous environmental and social targets, the company's impact on the environment and society remains relatively high. The decision to hold oil production steady till the end of the decade is likely to be met with some disappointment.

Controversies relating to environmental degradation, bribery and corruption, and community relations continue to play an important role in how Shell is perceived globally, as well as its financial disclosures around its renewables business.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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