Shell shares rose on Thursday after the oil majors released Q3 earnings and announced a fresh $3.5 billion share buyback.
Shell was one of the few FTSE 100 gainers after its Q3 results revealed better-than-expected profits across its fossil-fuel-focused business units.
Perhaps the biggest influence on shares was the expansion of their share buyback programme.
Nick Purves, Fund Manager of the Temple Bar Investment Trust, recently discussed the attractions of Shell’s buybacks on the UK Investor Magazine Podcast. Nick Purves explained that the long-term trend of buying back shares underpinned their investment case and was an integral element in Shell’s place as the trust’s top holding.
The broader market evidently shares this sentiment, and Shell’s shares rose 1% in early trade on Thursday despite the broad losses of the FTSE 100.
“Shell’s delivered a significant third-quarter beat driven by better-than-expected results in all division bar renewables,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“That’s given management the confidence to push the button on a $3.5bn buyback, marking the twelfth consecutive quarter where plans to repurchase $3bn or more have been announced. That’s impressive stuff in the context of weak commodity prices and industry-wide pressures on refining margins.”
Despite weakness in fossil fuel prices, Shell remains a cash-generating machine, producing $10.8bn free cash flow in Q3 2024 compared to $7.5bn in the same period a year ago.
“At the same time, Shell’s still managing to shrink its net debt pile, paving the way for further shareholder distributions. With capital expenditure now set to come in below guidance for 2024, investors will be paying close attention to Shell’s capital allocation plans for 2025 when full-year results are announced,” Nathan said.
“Integrated Gas and Upstream remain the key profit drivers and whilst the range of outcomes for production in the fourth quarter is a little wide, the short-term outlook looks broadly stable. Looking further ahead, plans to develop new fields as well as upgrade existing assets in the Gulf of Mexico should help keep production moving in the right direction. Shell’s financial discipline is highly impressive, and for now, it seems to be finding the right balance between rewarding shareholders and investing in growth. But any further pullback in investment spend could raise some questions on the group’s ability to future-proof the business.”