Royal Dutch Shell Valuation

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Royal Dutch Shell
Note for potential Investors

Harsh SRIVASTAVA

Master in Finance,
International University of Monaco
25th October, 2012

Table of Contents

Summary……………………………………………………………………………………………………………………………………..3 1. BACKGROUND Analysis………………………………………………………………………………………………………..3
Company Overview and History……………………………………………………………………………………………3
Main areas of business…………………………………………………………………………………………………………3
Strategy………………………………………………………………………………………………………………………………….4 Industry Overview……………………………………………………………………………………………………………………….5
Economic conditions…………………………………………………………………………………………………………….5
Competition………………………………………………………………………………………………………………………….5 Recent History and News…………………………………………………………………………………………………………..6 2. Valuation using Dividend Discount Model………………………………………………………………………….7

Dividend history……………………………………………………………………………………………………………………7 Forward-looking Assumptions………………………………………………………………………………………………7 Choice of model……………………………………………………………………………………………………………………8 Sensitivity Analysis………………………………………………………………………………………………………………..9 3. Relative Valuation using Multiples method…………………………………………………………………………9

Competitors…………………………………………………………………………………………………………………………..9
Multiples………………………………………………………………………………………………………………………………..9 RATIO ANALYSIS………………………………………………………………………………………………………………………….11 4. VALUE INVESTING………………………………………………………………………………………………………………….21
Criteria……………………………………………………………………………………………………………………………………21
Note for potential investors…………………………………………………………………………………………………22 INDUSTRY ANALYSIS………….…………………………………………………………………………………………………………22 FINAL RECOMMENDATION………………………………………………………………………………………………………….26 Bibliography…………………………………………………………………………………………………………………………………29 Summary

Target Company: Royal Dutch Shell Comparables: BP plc, Total S.A., BG Group plc Recommendation: BUY

The company is in good financial health since the crisis and shows potential share price appreciation in the near future due to current undervaluation of stock. Soon expanding into China, the company has one the highest five-year average free cash-flow and dividend yields and the lowest price multiples. For the value investor the stock is currently attractive, being valued between €36.78 and €94.39. Using the Relative Valuation method, the price is between €31 and €87. Current price of Royal Dutch Shell – A shares on Euronext Amsterdam is €26.2 Two closest competitors to Royal Dutch Shell are BP Plc and Total S.A. and a third company with IFRS reporting picked is a comparatively smaller oil & gas company named BG Group plc. This was done in order to contrast the other 3 extremely large firms with a smaller firm within the industry. Background Analysis

Company Overviewand HistoryWebsite: www.Shell.com
Type Public Limited CompanyIndustry: Oil and Gas
Traded asLSE: RSDARSDBFounded: 1900
Euronext: RSDARSDBHeadquartered:The Hague, Netherlands
NYSE:RSD.ARSD.BProducts: Petroleum, Natural gas, other Employees:90,000 Petrochemicals

The company is the world’s second largest by 2011 revenues and one of the largest companies in the world by market capitalization ($215 billion).

Main areas of business:
Vertically Integrated in every area of the Oil & Gas industry – exploration, production, refining, distribution, marketing, petrochemicals, power generation, trading and renewable energy activities (solar, wind, biofuels, hydrogen). With operations in 91 countries, it produced over 3million barrels a day and has over 40,000 service stations worldwide.

Strategy
The company aims meeting growing demand for energy worldwide at the same time being environmentally and socially responsible. The company creates wealth for shareholders through its commitment to investing in major growth projects, particularly upstream. This explains the PP&E increase by $14 billion, which was funded mostly via long-term debt financing. The upstream...
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