Royal Dutch Shell plc, commonly known as Shell, is a British-Dutch multinational oil and gas company headquartered in The Hague, Netherlands, and incorporated in the United Kingdom as a public limited company. Shell is one of the oil and gas “supermajors” and, measured by 2020 revenues, the fifth-largest company in the world, the largest based in Europe, and the largest not based in either China or the United States. This week, I fundamentally analyze Shell’s stock. I review RDS’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2020’s free cash flow of $17,520 million figure, a 5% growth rate of FCF (growth for the next 10 years), 10% discount rate, 2% long term growth rate (growth from 10 year mark to perpetuity), 3,899 million shares outstanding, and $66,838 million of long term debt, the DCF analysis yields us an intrinsic value of $52.30 per share. Using the current stock price of about $40 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return to be 11.5% if we hold this security through 2060.
0:33 Business Overview
4:57 Key Ratios Analysis
12:58 Discounted Cash Flow Analysis / Intrinsic Value
14:53 Expected Rate of Return Calculation
15:58 Summary / Conclusion
Shell’s Website: here
Morningstar Key Ratios Link: here
Useful Resources here
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