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Royal Dutch Shell Set to sink?

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By Royston Wild – Saturday, 11 June, 2016

The possibility of protracted earnings pain also makes Royal Dutch Shell (LSE: RDSB) a gamble too far, in my opinion.

At face value, charging oil prices may be at odds with my bearish take on the state of the market. Indeed, the Brent index surged above the $52 per barrel marker for the first time since October this week, helped by supply disruptions in Nigeria and a weaker US dollar.

However, the long-term outlook for crude values remains on thin ice, in my opinion. Production from OPEC and Russia continues to blast higher, while patchy economic growth means that bloated inventory levels are likely to persist, a situation that could send black gold prices sinking again.

And Shell isn’t doing its long-term prospects any good, either, as it aggressively sheds assets and cuts costs in a bid to protect the balance sheet. The fossil fuel giant plans to sell $30bn worth of projects during the next two years, a strategy that’s likely to hamper earnings growth once the supply imbalance shrinks and crude prices charge higher.

Given Shell’s patchy profits outlook for the near term and beyond, I reckon an expensive forward P/E multiple of 22.3 times is difficult to justify.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon.com. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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1 Comment on “Royal Dutch Shell Set to sink?”

  1. #1 Peter Robins
    on Jun 23rd, 2016 at 13:24

    With poor management, rampant corruption and racism this is inevitable within short time. The situation of low crude price is being handled by Shell management shabbily. They are trying to show the shareholders action by cutting jobs in thousands, but actually the job cuts are not being done without any rational or transparent manner to reduce cost and enhance efficiency. When costly expat employees are being retained due to their skin colour, cheap and efficient local employees are being targeted. With such poor management the fate of the company is known to world.

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