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Tuesday, February 02, 2016

Shell: A Shocker?!

This morning we have the news of Royal Dutch Shell group disposing its 51%-stake in Shell Refining Company (Federation of Malaya) Bhd ("ShellM") for RM276 million (or RM1.80 per share). The headline implies that the selling price was unexpected. Is it?

In July 2015, I projected that the stake may be sold for as little as RM1.19 per share based on the same formula that arrived at the selling price of Exxon group's 65%-stake in Esso Malaysia Bhd. Thus the selling of RM1.80 was a 50% higher than my computation. 

The reasons for the sale by Royal Dutch Shell group are were:
1) the need to invest in upgrading the refinery plant to (meet) Euro 4M & Euro 5 requirement
2) the consistent level of losses recorded
ShellM did not mention the amount of  capex to upgrade the refinery plant but we know that the company achieved the following results overin the past 9 years:
1) Revenue: RM108 billion
2) Pre-tax loss: RM667 million
3) Net loss: RM688 million
This is clearly shown by the chart below:

 
Chart 1: Shell's last 36 quarterly result

I have appended below the charts of ShellM and PetronM. Due to the sharp rally in PetronM in response to its outstanding profit in the past 3 quarters, Shell also rallied 3 weeks ago to a high of RM6.30. Today, the sweet memory of that rally would probably still linger in the mind of its shareholders. The quicker you shake of that memory, the sooner you would be able to take the decisive action to sell off your Shell shares. Shell which was last traded at RM4.94- a good RM3.14 above the transacted price agreed by Royal Dutch Shell group.


Chart 2: ShellM's weekly chart as at Jan 29, 2016 (Source: ShareInvestor.com)

Those investors who are fortunate enough to have bought into PetronM is reminded again that you should continue to take profit on that stock. Its last 3 quarters of sterling financial results is due to favorable crack spread- something which may not hold for long. See my earlier report on PetronM.


Chart 3: PetronM's weekly chart as at Jan 29, 2016 (Source: ShareInvestor.com)

Based on the above, it is recommended a SELL rating for both ShellM and PetronM.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, ShellM & PetronM.

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