6th Jan 2023 17:47
(Alliance News) - Shell PLC is backed by analysts at UBS with a 'buy' rating, despite the oil major revealing on Friday that it expects an impact of around USD2 billion from UK and EU windfall taxes in the final quarter of 2022.
Shell said these impacts will be reported as identified items. It will not impact its fourth quarter adjusted earnings, and it will have limited cash impact in the quarter, given the expected timing of payments.
This is on top of Shell paying USD4.30 billion to USD4.70 billion in tax for the quarter.
Overall, Shell expects its Chemicals results to be lower in the fourth quarter of 2022 compared to the previous quarter, partly due to the start-up of Shell Polymers Monaca, its Pennsylvania Chemicals project, which has started to be depreciated but is still in ramp-up phase.
Shell also expects an adjusted quarterly loss of between USD550 million and USD750 million in its Corporate division, although this will narrow from a loss of USD889 million a year prior.
Further, Shell expects around 900,000 to 940,000 barrels of oil equivalent per day to be produced for its Integrated Gas Unit in the quarter, compared to 927,000 a year ago.
On the other hand, Upstream production forecasts were raised marginally to between 1.825 million boepd to 1.925 boepd, compared to the previous guidance of between 1,750 boepd to 1,950 boepd. UBS forecast a production of 1,978 boepd for the quarter.
UBS said Shell's working capital forecast indicates a more material positive. Shell expects a working capital inflow of USD4.0 billion in the fourth quarter, above the UBS estimate of USD3.1 billion inflow and "well-above" Visible Alpha cited consensus of USD600 million.
UBS set a target price of 2,650 pence for Shell.
AJ bell analyst Russ Mould noted the mixed nature of Shell's update.
"In its usual teaser of quarterly results Shell has a classic good news/bad news combination to offer shareholders. First the good news: the company's large liquefied natural gas business is expected to have delivered a very strong performance despite lower output on plant outages. This demonstrates just how robust LNG pricing is right now as countries scramble to replace Russian gas," Mould explained.
"Now for the bad news: lower oil prices will hit the oil products part of the business and Shell has quantified the material impact of freshly introduced windfall taxes in the UK and Europe – which are now expected to run into the billions."
Shell's future plans in the UK will be in focus, after a recent change at the top of the company.
"It would be disingenuous for Shell to gripe too much about these new levies given recently departed Ben van Beurden argued they were 'inevitable' back in October. Though Shell subsequently said it would review GBP25 billion worth of investment in the UK and it will be interesting to see the stance new CEO Wael Sawan takes on the issue," Mould added.
Shares in Shell closed up 0.2% to 2,316.66p on Friday afternoon in London.
By Jaskeet Briah, Alliance News reporter
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