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Shell falls as profits soar but cash flow disappoints

Shell falls as profits soar but cash flow disappoints

Shares in Shell (RDSb) have fallen towards the bottom of the FTSE 100 after the oil major reported a 42% surge in first quarter profits but disappointed investors on cash flow.

The shares fell 2.7% to £25.19, bucking the FTSE 100, which edged nine points higher to 7,389.

Profits beat expectations, hitting $5.3 billion (£3.8 billion), but cash flow was lower than over the same period last year, at $9.5 billion. Free cash flow was little changed at $5.2 billion.

'Cash flow performance is probably more important at this point, particularly because the company is so highly prized for its generous dividend and strong cash flow helps underpin confidence in its sustainability,' said Russ Mould, investment director at AJ Bell.

'Here the picture is a bit more mixed. There is recovery from the previous quarter's disappointing performance but cash flow from operations was still down marginally on a year-by-year basis.'

Simon Gergel, who holds Shell as his top position in the Merchants (MRCH) investment trust, representing 7% of the £520 million portfolio, hailed the results as a sign of the oil major's 'continuing progress'.

'Profitability is improving, balance sheet gearing is coming down and the company generated enough cash to cover all capital investment costs and the quarterly dividend,' he said.

'We are looking for further news later this year on when the company will commence its share buy-back.'

Steve Clayton, who holds 4.1% of his £207 million HL Select UK Income Shares fund in Shell, said the more muted outlook for the second quarter was responsible for today's share price fall, but was buoyed by the results.

'Shell’s position is much improved, even if their view of the next few months hardly sets the pulse racing,' he said.

'The group are confident in their future cash flows and expect to repurchase $25 billion of shares over the next couple of years, largely funded through divesting non-core assets.

'With the yield on the stock currently around 5.2%, these repurchases will improve the cash cover of the dividend on the remaining shares.'

On the FTSE 250, fund manager Neil Woodford was handed some respite in a difficult week, as biomass electricity producer Drax (DRX) jumped to the top of the index, up 9.4% at 322p.

The stock is a 1.4% holding in Woodford's £6.6 billion Woodford Equity Income fund.

The manager's Woodford Patient Capital (WPCT) meanwhile recovered some ground after Monday's heavy share price fall, up 2.1% at 76.9p.

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Steve Clayton
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