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Is Shell Strongly Positioned to Handle UK’s Windfall Tax?
Stock Analysis & Ideas

Is Shell Strongly Positioned to Handle UK’s Windfall Tax?

Headquartered in London, Shell plc (NYSE: SHEL) is engaged in the exploration, production, refining and marketing of oil and natural gas, and the manufacturing and marketing of chemicals.

The company has operations in more than 70 countries and produces around 3.2 million barrels of oil equivalent per day. Further, it sold 64.2 million tonnes of liquefied natural gas (LNG) last year and had 82,000 employees at the end of 2021.

Last week, Shell released its financial results for the first quarter of 2022. Let’s take a look at what the numbers reveal.

Q1 Results

The British company reported a record profit of $9.1 billion, almost three times higher than the $3.2 billion posted in the first quarter of last year. The figure also came in above the previous quarter’s profit of $6.3 billion and the Street’s estimate of $8.7 billion.

Shell reported a profit despite incurring a cost of $3.9 billion related to its exit from Russia.

The profit is also the result of sky-high oil prices as supply fails to meet demand due to many nations halting oil imports from Russia. Before Russia invaded Ukraine in February, oil prices were already on the rise due to increased demand stemming from the global economic recovery from the COVID-19 pandemic.

Windfall Tax

As U.K.’s oil majors release their quarterly results, the Boris Johnson government is facing increasing pressure to levy a windfall tax. According to the people campaigning for the one-off tax, the amount that the government will collect from this tax will be used to deal with continuously rising energy bills in the country.

However, the government has still not agreed to this. It said, “Such a move would discourage oil and gas producers from making investments into domestic energy.”

Shell plans to invest around £20 billion to £25 billion locally over the next 10 years. These investments will be made mainly in low-carbon projects.

Commenting on the windfall tax, Ben van Beurden, the CEO of Shell, said, “While a windfall tax may not force it to shelve specific projects, large investments required a stable and predictable financial outlook.”

Other Highlights

Meanwhile, the company repurchased shares worth $4 billion during the first quarter. It plans to make share buybacks of $8.5 billion in the second quarter.

It has also raised the first-quarter dividend by almost 4% to $0.25 per share.

Price Target

Overall, the stock has a Strong Buy consensus rating based on three Buys. SHEL’s average price target of $71.57 implies 24% upside potential from current levels. Shares have gained 49.3% over the past year. Shares of Shell have grown 30.4% year-to-date and 49.3% over the past year.

Blogger Opinions

TipRanks data shows that financial blogger opinions are 100% Bullish on Shell, compared to the sector average of 77%.

Conclusion

Shell posted outstanding results for the first quarter on the back of skyrocketing oil prices. However, this growth may not be sustainable, and investors should wait and watch how the company performs over the rest of the year.

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