Nov. 12, 2018 11:13 AM ET
Summary
- The European Oil sector has demonstrated an impressive capital discipline, with renewed focused on cash earnings.
- Royal Dutch Shell is an exceptional cash generating machine that has recently released the best quarterly results in the company’s history.
- The muted share response to the earnings report creates a wonderful entry point to an unloved sector.
My high conviction investment thesis in Royal Dutch Shell (RDS.B) is based on three success pillars. The first pillar is growth in net income, accompanied by a significant rise in free cash flow. The second pillar is shareholder friendliness, or how Shell treats its shareholders well. The third pillar, as in with every investment, is the current compelling valuation of shares
Responsible, Consistent Growth
In the third quarter, Shell generated adjusted net income in the amount of $5.6 billion, up a whopping 37 percent compared to the third quarter of last year. Earnings were 70 cents a share, up 40 percent year over year. More importantly, the company’s growth is well balanced between its different divisions. The upstream division (oil exploration) generated adjusted net income of1.88$ billion, compared to a meager 562$ million during the third quarter of 2017.