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Shell & Compass Group Reporting

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  • Shell PLC (LON:SHEL) has today reported adjusted earnings for the fourth quarter of 2021 of $6.4bn, 55% more than the previous quarter’s outcome and sixteen times higher than a year ago.

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  • The results were boosted by high energy prices, with earnings in the Integrated Gas and Upstream divisions accounting for all of the increase.
  • The company also announced that the Q1 2022 dividend would rise by 4% to US25c per share and the start of a share buy-back programme.

Shell, Q4 - Bring Oon The Buy-Backs

Steve Clayton, manager of the HL Select funds:

“This was a strong quarter for Shell, notwithstanding expectations that were already high, given the well-publicised surge in energy prices. It was also the first quarter to be reported under the new simplified corporate structure which has unified the Anglo and Dutch businesses into a single UK-based company with its primary listing in London.

Shell’s huge gas business spans the globe and is especially strong in producing Liquefied Natural Gas, which can be shipped around the world to wherever the highest bidder sits. Even setting European gas prices aside, the oil price globally has been strong and Shell has benefited accordingly.

The numbers are full of adjustments for derivative and inventory gains and losses, but the underlying picture is clear; Shell are generating huge amounts of cash currently and debt levels have dropped, taking gearing to just 24%. The market will welcome the announcement of an $8.5bn share buy-back for the first half of 2022. This will enhance future earnings per share and improve dividend cover.

Some will argue that Shell could return even more to investors, given today’s announcement of an increase in future quarterly dividends still leaves the payment barely more than half its pre-pandemic level. But even at this level the shares offer a prospective yield of almost 4% and we doubt the board will feel they need to offer more. The market seemed to think so too, with the shares rising a couple of percent in early trading.”

Compass Group, Q1 - Compass points North

  • In what the company described as “an encouraging start to the year”, Compass Group plc (LON:CPG) has today reported organic revenue growth of 38.6% in the group’s 1st quarter to end December.
  • Revenues are now back to 97% of pre-pandemic levels, driven by strong new business wins and recovery in the base business.
  • Revenues grew most strongly in the USA, Compass Group’s largest regional division, up by some 51% and now trading at 102% of pre-pandemic levels. Europe grew by 25% but remains more than 10% below the 2019 equivalent revenue run-rate. When looked at by client type, all sectors bar Business & Industry are ahead of the pre-pandemic level, with Healthcare & Senior Living strongest at 115% of prior levels.
  • The pandemic has encouraged organisations to outsource their catering offer. Compass say that three of their top five new business wins in the period came from clients outsourcing for the first time.

Steve Clayton, manager of the HL Select funds:

“This was a strong end to the year for Compass. The group has recovered well and looks likely to end up stronger post-pandemic than before, not least because of the boost to the overall market size created by the pandemic. Managers had too much on their plate to worry about what was going onto their workers’ plates in the canteen. Compass can take that hassle away and often improve the catering offer in the process.

Niggles could be that margin expansion is going to be weighted to the back end of the year and inevitably, as the marginal pace of re-opening in economies slows over the course of the year, Compass’s own growth will slow down with it. On balance though Compass have done enough to keep investors sweet. The group are confident that future growth rates will be greater than those seen before Covid came along and that margins will be at least as high. They offer the prospect of further returns to shareholders, which should boost earnings per share ahead of revenue growth.

With Compass seemingly pointing north, the market has reacted positively to the news, with a rise of over 6% in early trading.”

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