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DAILY TELEGRAPH UK: New Shell formulation will take time
to settle down: SATURDAY 23 JULY 2005
More news from Shell this week, except
thankfully it was nothing to do with losing reserves.
The oil giant has unified its dual corporate structure
to create Royal Dutch Shell.
There are now two lines of stock traded
in London. Shell A shares, which originate from the
former Dutch parent Royal Dutch Petroleum, and Shell B
shares, which replace UK arm Shell Transport and
Trading.
With all the shares in the new company
now traded on the London Stock Exchange, the number of
shares - and its market capitalisation - has more than
doubled. Investors' holdings in the unified group have
changed too. Shell Transport investors have received 28
Royal Dutch Shell B shares for every 100 Shell shares
held - that is why the Royal Dutch Shell B shares are
trading at around 3.5 times the price of the old Shell
shares.
Royal Dutch Petroleum shareholders
collected two Royal Dutch Shell A shares for every old
Royal Dutch share.
Other ratios affected by the increase
in the number of shares in issue are earnings per share
and dividend forecasts for this year, which jump to
169.9p and 63.1p respectively.
From a corporate perspective, the main
difference is that Royal Dutch Shell will find it easier
to issue new shares to fund acquisitions, which was
difficult under the old dual structure.
Shell's production is still likely to
lag arch-rival BP because it did not invest in more
production in the late 1990s. However it is sensibly
using the high oil price to invest heavily in
exploration, which should start to yield benefits by the
end of the decade.
With such a complex shake-up, analysts'
forecasts are yet to settle down, which explains our
sparse table, although one prominent US investment bank
increasing its price target for the B shares to £20.65.
At yesterday's closing price of £17.95, Royal Dutch
Shell B shares trade on 10.6 times prospective 2005
earnings, yielding 3.5pc. On this basis, the shares are
cheap and rate a buy for a long-term. |
