Shell misses earnings forecasts and faces break-up calls, while Lloyds’ strong results fail to lift the FTSE

“Normally one shouldn’t get too hung up over a mere three months’ trading, but this was meant to be Shell’s big quarter, given the surge in oil and gas prices in the past few months. Sadly, it has missed earnings forecasts and left investors feeling frustrated,” says Russ Mould, Investment Director at AJ Bell.

“However, the bigger story is an activist investor calling for a break-up of the company. Third Point effectively argues that Shell has lost focus as it cannot run a business with conflicting strategies of trying to go green via renewable energy and retaining oil and gas production.

“In this modern age, investors either want to wear an ESG hat, knowing that their investments are doing the right thing when it comes to environmental, social and governance matters, or they don’t care what the company does so long as it makes money.

“Splitting off the oil and gas assets from Shell has long been seen as a logical next step for the business, but no-one has really called for the company to proceed until now. That’s because there is an argument to say its renewables operations are not yet large scale and the cash flow from the oil and gas operations is required to fund investment into areas like wind power.

“The recent spike in oil and gas prices will have reminded Shell’s board of the appeal of owning fossil fuel assets when commodity prices are high. However, the company has pledged to transition to a green world so we’re unlikely to see new investments in oil and gas assets despite the favourable price environment.

“One would have thought Shell will fight any opposition now to do the splits, but it is a decision that may have to be made at some point in the future.”

Markets

“Despite the best efforts of Lloyds and GlaxoSmithKline to drive the FTSE 100 forward, the UK stock benchmark slipped 0.3% to 7,232 because of negative movements from index heavyweights Royal Dutch Shell and HSBC.

“Lloyds beat forecasts with its latest quarterly results, helped by the release of more cash that had been set aside for pandemic-related bad debts as well as a strong performance with mortgage lending.

“Investors have been warming to banks in recent months in hope that rising inflation will prompt higher interest rates, which in turn provides more opportunities for lenders to increase earnings.

“The European Central Bank will update the market later today and investors will be looking for any shift in thinking with regards to inflationary pressures. Slowing economic growth and a rising cost of living are big concerns to the market, but the message from central banks in general has been that the current spike in inflation will be short-lived.”

These articles are for information purposes only and are not a personal recommendation or advice.