Is buying Royal Dutch Shell plc at its 52-week high still a great investment?
Royal Dutch Shell(LSE: RDSB) shares have rebounded strongly since February and the share price is back above the important 2,000p level. I still believe that investing in the shares now is a fantastic opportunity and one that shouldn't be missed.
Shell has made no secret of the fact that huge asset sales are on the way over the next four years. The company is aiming to divest over $30bn in non-core assets and there are even plans to spin off a $40bn 'baby shell' company. This is a clear indication to the market that Shell is refocusing and streamlining operations. Debt levels currently stand at $70bn so any reduction of that would be welcome by investors. If debt levels are reduced to an acceptable number then it may allow Shell to increase the dividend in the future. The dividend has been prioritised by management so I'm hopeful for an increase before 2020.
Shell took advantage of weak oil prices last year and bought BG Group in what many thought was a great deal. Operational synergies targets have been surpassed and currently the company expects to create more than $4.5bn of savings before 2018. BG's deep-water assets in offshore Brazil are going to provide Shell with fantastic production rates and huge profits. Expected cost savings keep being revised upwards and the company only needs a $50 oil price to make the acquisition work. Analysts believe that the deal was a clever piece of business that has ensured that Shell will continue to grow fast even as a super major.
Geared to the oil price
Naturally as an oil and gas producer Shell is highly geared to the oil price. Many commodity analysts believe that next year will bring oil prices above $70 as the lack of investment kicks in. This would be perfect for Shell as it ramps up production and continue to divest assets. CEO Ben van Beurden set some very challenging targets to be met by 2020 including an annual organic cashflow target of $20bn. If the company can achieve this goal then I think shares could power through the 2,750p mark. These targets were also made with a $6o oil price in mind. That means if the oil price gets ahead of that mark, Shell could outperform further and investors would pile into the shares. The dividend is the number one priority and provides a fantastic income for investors. Today the shares trade 40p below the 52-week high and have a dividend yield of 5.8%.
Overall I see Shell as one of the most attractive investments in the world right now. I think that the shares are good value at current prices and could see a decent increase in the next four years. City brokers are slightly more pessimistic and most broker targets are between 1,800p-2,180p which would indicate Shell is well valued. Investors should keep an eye on these as I think we may see targets moved higher in the not to0 distant future.
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Jack Dingwall has shares in Royal Dutch Shell. 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.