LIn July, Shell chief executive Wael Sawan told the BBC about his great time visiting the New York Stock Exchange. The reception was “exemplary”, he enthused, with locals even hoisting a Shell flag next to their own. “They are [the NYSE officials] “We have said we will continue to evaluate companies that can provide us with the energy we so desperately need,” he continued, adding that he would not rule out moving Shell’s stock market listing to the U.S. at the appropriate time. But this is an incendiary suggestion given the general anxiety about the situation in the United States. London market.
Now he’s at it again. In comments to Bloomberg published this week, he said Shell had “locations” (by which he meant London) that “we believe are clearly undervalued.” His concern is that Shell’s stock is perceived to be undervalued compared to New York-listed rivals Chevron and ExxonMobil. If the assessment gap does not close, “all options need to be considered. All options are available,” he stressed.
Unsurprisingly, his predecessor, Ben van Beurden, joined in the frustration, saying at this week’s FT conference that Shell was “significantly undervalued” in London and undervalued in its capital pool in the US. He said that the company has become a “more forward-looking company” with a deeper understanding and a higher reputation. ” Investor attitude “colludes” against all European energy companies. “Something is going to have to give,” Van Beurden said.
This is starting to sound like a campaign to create an atmosphere that a switch to the US is inevitable. Or, if not, Shell executives seem obsessed with the idea that relisting will solve all their problems. It’s their job to worry about share prices, but I can’t overstate how detrimental this is to the London Stock Exchange. The largest companies in the market are publicly threatening to exit. It’s on a different level than seeing Flutter, Ferguson and CRH flee to the US. If Shell leaves, who will be next? Glencore? Even BP?
But I have one fundamental question about Sawan’s paper. Is that really true? Does the undervaluation in terms of earnings and cash flow multiples exist solely due to the fact that Shell is listed in London? One wonders if the story is that simple. Dew.
US investors currently have no difficulty purchasing Shell shares either directly or through US depositary receipts. According to the company’s own figures, 45% of institutional registrations are already American, while 29% are British. Unlike Ferguson and CRH, it doesn’t seem difficult for American money to get noticed. That’s not surprising. Here we are talking about his £180bn company. Unless other factors come into play, it seems unlikely that the market will hold off on the 25% discount, which seems to be a rough analysis of Shell’s current situation.
Perhaps the real explanation is that the stock market is (sadly) very skeptical about the pace of the energy transition and the return on capital for renewable energy. Therefore, the most oil-rich companies, such as the two US giants, are valued more highly than those with a sideline in renewable energy, such as Shell, and, as a result, slightly more environmentally friendly companies, such as BP. It is valued higher than the company. While this price signal is frightening from a climate perspective, the important point is that simply relisting Shell shares will not change the asset mix.
Perhaps Sawant wants to further water down Shell’s emissions reduction targets and thinks it’s easier to do so from the United States. But if that’s the case, then you should say it openly. There is a strong smell here that what Shell and Sawan really hate is the climate policy of European governments. This is a separate argument from the dubious claim that the same revenue is valued very differently in different markets.
The London Stock Exchange has come under a lot of criticism, including in this column, for its seeming lack of concern for departures and new entrants. But on this occasion, one can feel some kind of sympathy. Shell, perhaps the most liquid, deeply researched and widely held stock in the city, appears to have focused on the theme of “undervaluation” with no evidence that location was an issue in this case. . If you were in LSE’s position, you would be furious. Shell’s loose talk of “may or may not do it” is causing serious damage.
