Thursday, May 6, 2021

Shell strategy looking like a bundle of compromises | Business

Must read

Shell billed its net zero by 2050 plan as an “acceleration” of strategy, which was a generous self-assessment. In today’s big oil terms, the approach is a cruise down the middle lane – a tweak here and there, but nothing to frighten those shareholders still scarred by last year’s cut of two-thirds in the dividend.

The company plans to reduce oil output by only 1%-2% a year until 2030, which compounds to an overall reduction of about 15% in the period. BP opted for 40% cut in oil and gas by 2030. Including gas, Shell’s production may be flat.

On renewables, Shell’s numbers are relatively small. The investment budget will be $2bn-$3bn (£1.45bn-£2.15bn) a year for the “near term,” versus $8bn for the upstream oil and gas division.

Admittedly, Shell is ahead of BP in terms of installed renewables capacity, but the latter is planning to build or buy 50 gigawatts of green energy production this decade, which is a chunky investment.

Shell’s chief executive, Ben van Beurden, didn’t put it so starkly, but it looks as if the board has decided prices in offshore wind and solar are too frothy to chase.

That judgment may be correct: BP stunned rivals this week with the prices it paid for the right to place windfarms in the Irish Sea. But it means Shell’s greener strategy rests heavily on “value chain” exercises such as rolling out electric vehicle charging points from 60,000 today to half a million by 2025.

That is a case of exploiting the brand, as opposed to trickier stuff like converting deep-water expertise into technological innovation. It all counts, Shell might argue, since 90% of its emissions are the “scope 3” ones produced by customers. True, but it also feels meek.

Shell’s shareholder base is deeply divided about the costs and opportunities of net zero: a few want faster transition, some cling to the oily income they know. The result is a strategy that looks like a bundle of compromises. Investors, for a change, will get a vote on the plan. Very good – just don’t expect enthusiasm.

No need to fret over AstraZeneca

A worry for AstraZeneca shareholders was that the time and energy spent on Covid-19 vaccines for no profit (at least until the pandemic stage is over) would distract from the day job. There was no need to fret.

Thursday’s full-year numbers showed sales up 10% to $26.6bn and core earnings 18% higher, with newer medicines, as promised, doing the heavy lifting. Yes, AstraZeneca can do Covid and cancer at the same time.

The chief executive, Pascal Soriot, may also have a future as a diplomat. It was only two weeks ago, remember, that the quarrel with the European commission over delays to vaccine deliveries looked nasty. AstraZeneca was being painted as a scapegoat – completely unfairly, according to most lawyers who read the “best efforts” terms of the contract – for the commission’s sluggish negotiation last year.

The danger now seems to have passed. A peace deal of sorts was signed this week when AstraZeneca enlisted the German drug manufacturer IDT Biologika to produce the next generation of Covid vaccines, with a push to speed up the current round. That was always the obvious way to resolve the mini-crisis – actually build more capacity.

Almost simultaneously, Ursula von der Leyen, the commission president, has started talking about how “mistakes were made” by Brussels in vaccine procurement. AstraZeneca would be foolish to boast, but it’s been vindicated. Neatly done.

Glass half full at Marston’s

That’s how to see off a cheeky takeover bid from private equity: say no, say it firmly, and wait for the capitulation.

At the pub company Marston’s, it has taken only nine days for Platinum Equity to retreat after being told its £690m, or 105p-a-share, proposal “very significantly undervalues” the business.

The key was Marston’s board’s insistence that the pre-pandemic share price should be the reference point for valuation. In other words, a 19% discount was not even close to a full pint, especially as the brewing business has since been merged into a promising joint venture with Carlsberg.

Ignoring the pandemic’s impact won’t work for every company on the receiving end of an opportunistic offer, but Marston’s stance was correct.

Pubs – at least, those that get through to the other side – should bounce back when they’re allowed to reopen. The punters are gasping.

Source link

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Latest article