Shell (LON: SHEL) has flagged an impairment of $2.5bn – $4.5bn ahead of its full year 2023 results being published next month.
The hit, mainly linked to its chemicals business in Singapore, came amid strong guidance from other segments including integrated gas and upstream.
“Overall, we see the statement as neutral given a reasonable operational result, however earnings continue to be dragged down by a weak performance from its Chemicals division,” said RBC’s Biraj Borkhataria.
Gas trading earnings are expected to be “significantly higher” in Q4 than Q3 2023 due to seasonality and “increased optimisation opportunities”.
However the chemicals and products division is expected to take a loss, with trading and optimisation “significantly lower” than Q3.
Jefferies, meanwhile, said it expected the main focus of the update to be on “weak” cash flow from operations (CFFO) guidance, with questions linked to its commitment in November to deliver $3.5bn in share buybacks.
Despite good updates on upstream and integrated gas, the uncertainty on the impact from other items, working capital and derivatives could put negative pressure on Shell’s CFFO estimates, the firm said.
The is turn leads “to concerns around Shell’s ability to maintain the current level of buybacks ($3.5bn).
“In order to keep buybacks at $3.5bn, Shell will have to generate at least $14.5bn CFFO post-working capital (based on its 30-40% CFFO distribution policy).”
Shell said working capital and derivative estimations inherently have a broad range of uncertainty
RBC had assumed zero working capital movement in Shell’s guidance, however the oil firm has guided it could be anywhere from minus-$3bn to $3bn, including around $1bn of German oil taxes.
Shell will report its 2023 results on Feb 1.
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