Stocks in Focus: Royal Dutch Shell

This week Harry Tyler of NW Brown looks at Royal Dutch Shell.

Royal Dutch Shell, the UK listed oil and gas company, is aiming to become the world’s biggest power company by the 2030s through an expansion into renewable energy production and distribution. In a sector plagued by a declining sentiment towards fossil fuels, the company has started spelling out a potential strategy. Investor pressure has been building against the major oil companies since the news that Norway’s Sovereign Wealth fund will divest from some oil and gas companies to reduce the country’s fossil fuel exposure.  Some UK university endowment funds have also begun divesting from oil and gas assets after student led campaigns.

Shell has begun acquiring companies via its ‘new-energies unit’, including UK electricity provider First Utility, electric-vehicle charging operator NewMotion and a stake in US solar company Silicon Ranch Corp. Management have guided that this is still in an experimental stage. However, it could provide the necessary diversification to future-proof the business.

The company’s vision does not stop there, it has rebranded its recently acquired UK electricity supplier, First Utility, as ‘Shell Energy’ and switched 700,000 UK customers to power supplied by renewable sources of energy. However, some investors are sceptical of this strategy as acquisitions can be expensive and if the projects are not managed well can haemorrhage money. Shell’s previous ventures into solar energy over 15 years ago lost money with the company citing lack of experience.

It is not clear whether Shell now has the right people to compete in the power industry. However, management have showed their intentions to deliver electricity alongside their existing businesses. We look forward to developments in Shell’s strategy to adapt to current affairs and whether investors warm to the idea of the company investing for the future.



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