What is Shell worth?

April 16, 2024

Location matters for comparable quoted companies

The market chatter that Shell may be considering moving its listing to the US on the grounds that its peers are more highly rated across the pond (see Shell considers switching ‘undervalued’ London listing to New York (thetimes.co.uk)) was a great example of an important issue that we as valuers think about a lot.

Shell’s shares trade on eight times forward earnings, whereas Chevron and ExxonMobil trade on multiples of almost twelve.

You can see why the management and no doubt shareholders would like to see a 50% uplift in the share price just for the cost of moving the exchange on which the shares are listed.

Just moving exchange does not necessarily mean that everything in the garden will be rosy for a company’s valuation.  Shell would be a much smaller constituent of the S&P 500 than it is of the FTSE100 and there is no guarantee that investors will uprate it regardless.

However, when we are valuing private companies, when we use quoted comparable multiples for companies not based in the same jurisdiction as our client, we always think about whether they are carrying a premium or discount because of the exchange they are listed on.

We also think about issues around the premium that may be being applied to a company for the fact that it is listed rather than unlisted.  We have a neat tool that works out the relative premia for companies that are or are not listed or backed by VC (the latter may include lots of “investor hope premium”) relative to the company we are valuing.

It’s about data and then arguments at the end of the day.  Does the evidence stack up?

This week we are paying close attention to the crisis in the Middle East and what impact it could have. There’s also issues such as the new border checks and the new minimum wage for workplace visas. These macro changes will impact many companies in ways that are not necessarily obvious.  Then there are the concerns that interest rates may stay at current levels for longer and that getting inflation down to 2% may prove harder than hoped.

Changes in macroeconomic and political events can and do impact on valuations as the risks and opportunities change.  Everything always has to be considered on a case by case basis.

Meanwhile, we are working on two revaluations for existing clients at the moment.  We did not anticipate when we started that our work would be more than one off projects, but it is clear that as companies come to understand the value of knowing what their business is worth, it leads them to get more interested on how that value changes over time.

We are always happy to take on valuations projects or just to have a call to help someone get a quick view.