Last July, Wael Sawan, the chief executive of Shell, told the BBC about the terrific time he had on a visit to the New York stock exchange. The welcome was “exemplary”, he enthused, and the locals even flew the Shell flag next to their own. “They [the NYSE officials] said we continue to value a company that provides us the energy we desperately need,” he continued, adding that he wouldn’t rule out moving Shell’s stock market listing to the US in time, an inflammatory suggestion given the general angst over the state of the London market.
Now he’s at it again. In remarks to Bloomberg published this week, he said Shell had “a location” – meaning London – “that clearly seems to be undervalued”. His beef is the perceived undervaluation of Shell’s shares versus those of New York-listed rivals Chevron and ExxonMobil. If the valuation gap doesn’t close, “we have to look at all options. All options,” he emphasised.
For good measure, his predecessor as chief executive, Ben van Beurden, joined the grumbling, telling an FT conference this week that Shell is “massively undervalued” in London and that deeper pools of capital in the US, higher valuations and the “more positive” attitudes of investors “conspire” against all European energy companies. “Something will have to give,” opined Van Beurden.
This is starting to sound like a campaign to create an air of inevitability around a switch to the US. Or, if it isn’t that, Shell’s top operatives seem transfixed by the notion that a relisting will cure all their troubles. It’s their job to fret about the share price, but it’s hard to overstate how detrimental this is for the London Stock Exchange. The biggest company on the market is openly threatening to leave. That is a different order of seriousness than seeing Flutter, Ferguson and CRH flee to the US. If Shell goes, who’s next? Glencore? Even BP?
But here’s one basic question about Sawan’s thesis: is it even correct? Does the undervaluation, in terms of earnings and cashflow multiples, exist solely by virtue of the fact that Shell is listed in London? One doubts the story is as simple as that.
It’s not as if US investors currently have any difficulty buying shares in Shell, whether directly or through American depositary receipts. On the company’s own numbers, 45% of its institutional register is already American versus 29% from the UK. Unlike Ferguson or CRH, there seems to be no difficulty getting noticed by American money. That is hardly surprising: we are talking here about a £180bn company. It seems unlikely the market would leave a 25% discount, which seems to be Shell’s rough current analysis, on the table unless other factors were at work.
The real explanation, perhaps, is that the stock market (sadly) is deeply sceptical about the pace of energy transition and the returns on capital in renewables. Thus, the most oily firms, such the two US titans, are prized over those with a sideline in renewables, such as Shell, which in turn is valued more highly than those with a slightly greener hue, such as BP. This price signal is terrifying from a climate perspective, but the point is that a mere relisting of Shell’s shares wouldn’t change the make-up of its assets.
Maybe Sawan would like to water down further Shell’s emission-reduction targets and thinks it would be easier to do so from the US. But if that’s the case, he should say so openly. There is a strong whiff here that what Shell and Sawan really dislike is the climate policies of European governments. That is a separate argument to the questionable claim that the same earnings are valued wildly differently in different markets.
The London Stock Exchange gets a lot of flak, including from this column, for its seeming lack of concern about departees and the lack of new arrivals. But on this occasion, one can feel some sympathy. Shell – possibly the most liquid, deeply researched and widely owned stock in town – seems to have alighted on the “undervaluation” theme without showing evidence that location is the problem in its case. In the LSE’s shoes, you’d be furious. Shell’s loose “maybe we will, maybe we won’t” talk is seriously damaging.
