Daily Telegraph
A 9pc fall in Royal Dutch Shell’s share prices is a buying opportunity, says Questor.
Garry White
Published: 6:00AM BST 12 May 2010
Royal Dutch Shell B
Royal Dutch Shell “B”
£18.15½ -0.5p
Questor says BUY
The best investment strategy to use at the moment is to sell the rallies and buy the dips. If you believe in this strategy, you should be buying Royal Dutch Shell.
Shell shares hit a 12-month high on April 30, but have slid by almost 9pc since then on worries over sovereign debt and global growth. The situation with BP has also been unhelpful.
However, the share price fall now means the yield is a very impressive 6.3pc. Questor reckons that now is a good time to top up your holdings or make a new purchase of the shares.
Questor upgraded the shares to a buy on March 17 after the group unveiled its strategic plan for growth. The company is investing heavily in its businesses. Shell’s management says its growth plans should increase cashflow by 50pc between 2009 and 2012 at $60 barrel oil or by 80pc at $80 a barrel.
The company’s recent consensus-busting first-quarter results have highlighted the group’s earnings power. When this is coupled with the growth and cash generation that it is planning over the next three years, a purchase at this level looks compelling.
Earlier this week, Peter Voser, Shell’s new chief executive, said that it had not been told to stop drilling in the Gulf of Mexico in the wake of the BP Deepwater Horizon incident.
He said that the leak would not have much impact on crude prices, although he highlight the end of global stimulus packages in the second half of the year as a risk.
The shares are trading on a December 2010 earnings multiple of 8.8 times, falling to 7.2 next year. They were recommended on March 17 at £18.56½ and are down 3pc compared with a market down 7pc.
UK investors should buy the “B” class shares because dividends paid on class “A” shares have a Dutch source for tax purposes, which means they could be subject to Dutch withholding tax.
Dividends paid on class “B” shares have a UK source and are therefore not liable to Dutch taxation laws.
Buy for the yield.
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