Cube UK Report (4 Feb 2021) – Shell licks its wounds after tough 2020

Cube UK Report (4 Feb 2021) – Shell licks its wounds after tough 2020

Hi everyone,

I’m back with the roundup of announcements:

  • Royal Dutch Shell
  • Sigmaroc
  • Cranswick
  • Alumasc


Royal Dutch Shell

  • Stock data should display here.
Market cap £99.9 billion ($136 billion)
RNS 4th Quarter 2020 and Full Year Results
Writer disclosure No position.

Shell’s financial performance was predictably decimated by the oil price move last year.

There’s a lot to take in – I’ve highlighted some of the bits I find interesting:

As you can see, the company manages to to report positive adjusted earnings, despite a loss of $21.7 billion.

It does this through the exclusion of almost $25 billion of “identified items” (vs. only $1.2 billion of identified items in 2019).

By far the biggest category of identified items is the impairments: there are over $21 billion of these, on an after-tax basis (or $28 billion pre-tax!).

Impairments are spread broadly and include offshore assets  in the Gulf of Mexico, Brazil, Nigeria and Europe. There were also huge impairments in the “Oil Products” division:

“…as a result of revised medium- and long-term price outlook assumptions in response to changes to the energy market demand and supply fundamentals as well as the macroeconomic conditions and the COVID-19 pandemic, and the shutdown of the Convent Refinery in the USA.”

For context, last year’s balance sheet included $312 billion of non-current assets, with about three quarters of this being PPE.

So in addition to the normal use of balance sheet assets, there were very significant writedowns, too.

Shell’s balance sheet equity falls from $190 billion a year ago, to $159 billion. This is the same level it was at when I commented on it in October.

Excluding intangibles and deferred tax, balance sheet equity is $119.4 billion. So just a little lower than it was, compared the last time I checked.

Net debt creeps up a little and is now 32.2% of total capital. There are big dividend savings being made compared to the prior payout, but I wouldn’t mind seeing it take an even more conservative approach.

Earnings outlook is poor:

Corporate Adjusted Earnings are expected to be a net expense of approximately $600 – $700 million in the first quarter 2021 and a net expense of approximately $2,400 – $2,800 million for the full year 2021, mainly representing a decrease in expected interest expense when compared to the full year 2020. This excludes the impact of currency exchange rate effects.

My view

I’m glad this was on my radar in October. At a $90 billion market cap then, I was hopeful of a bounce back (and I was long the FTSE, with Shell being a major component of course).

Today, at a $136 billion market cap, it’s actually at a premium to its tangible balance sheet value.

I still think it can do well, depending on commodity prices, but it’s now much easier to argue that it’s within the range of fair value.



Full-year trading report

This buy-and-build construction group has had a brilliant share price recovery over the past ten months.

Let’s see what it’s telling investors:

The Company is pleased to announce that the strong trading performance set out in its update of 9 December 2020, continued through the end of financial year. As a result, SigmaRoc expects to report final results ahead of current market expectations, with consolidated unaudited Group revenues of approximately £124 million, representing a 77 per cent. increase on the previous year, and EBITDA of approximately £23.8 million, representing a 64 per cent. increase on the previous year.

Some stunning growth percentages there. It’s obviously not organic growth, but hopefully it’s real nonetheless!

Net debt to underlying EBITDA at the end of 2020 was 1.7x, with the help of an equity fundraise. 1.7x would in general be considered a modest leverage multiple.

2021 trading: nearly all sites are operational and the encouraging market conditions have continued into early 2021.

And it sounds very ambitious for this year:

The strong cash generation in 2020, together with the net proceeds of the equity raise and the new £125m credit facilities entered into in December, mean the Group is well positioned to accelerate its strategic development in 2021, as opportunities present themselves.

My view

I’ve not studied this one before, but I’m intrigued by what sounds like a near-perfect trading update. Shares currently up 6%.



Third quarter trading statement

This super-quality food producer reveals that it had a strong Q3 and that the full-year outlook is now ahead of market expectations.

It has been a low-key lockdown winner:

UK retail demand remained strong during the quarter, reflecting the continued shift towards greater in-home consumption resulting from the COVID-19 pandemic.  Performance over the festive trading period was robust and ahead of the same period in 2019, reflecting a well-executed Christmas plan, supported by exemplary service levels to our customers and tight cost control. 

It continues to invest and will soon have increased capacity in poultry and cooked bacon.


For the remainder of the current financial year the shift towards greater in-home consumption with resulting high demand for our products is expected to continue.

My view

I’ve owned this on behalf of others in a managed portfolio, but never owned it personally. I probably should have picked up a few shares in this at some point – one to keep on the watchlist.



Interim Results

Reasons for cheer for Alumasc shareholders, as the interim dividend makes a comeback at 3.25p. The last time this was declared was in January 2019.

That suggests a final dividend well in excess of the 4p that was declared in September 2019, if trading remains strong.

Alumasc provides building products, systems and solutions. Its first search engine result is for gutters and downpipes.

CEO comment:

“The Group’s substantially strong performance of an 11% increase in revenues, 23% increase in export sales and more than 100% increase in underlying pre-tax profit during the period, reflects the successful execution of our repositioning strategy launched in 2019. This has been achieved by the hard work of the employees, for which I would like to thank them.”

The overhead reduction programme has really worked, and the underlying operating margin makes a substantial improvement to 13.6% (from 6.1%). This goes a long way towards explaining the more than doubling of pre-tax profits.

There’s great news on the pension benefit front, too, as it reduces from £19.3 million to £12.8 million in only six months – “benefitting from a strong investment performance”.

If it can be maintained around that level, or reduced even further, it will look very reasonable against the company’s earnings power.


Some risks and uncertainties relating to EU trade, Help to Buy, Stamp Duty, and Covid. Overall, a very positive tone:

“Underlying profit before tax at 13% of sales demonstrates what Alumasc can achieve in its chosen marketplace. The Group has a strong balance sheet, with a healthy cash position, and a well defined growth path… despite the above risks and uncertainties, the Group is now in a very strong position to move further forward.”

My view

Is the market being overly sceptical towards this? I can’t wrap my head around a market cap of just £52 million, versus the earnings power it has just demonstrated.

Are its products commoditised? Can revenues be lumpy? What am I missing…?





That will do it for this report. See you again soon!




Wordpress (4)
  • comment-avatar

    Graham. Thanks a lot for the insightful commentary as per usual. To my mind the big oil companies have become virtually uninvestable, buffeted in the short-term (as they always have been) by the (random walk) of oil prices and now increasingly mid/long-term by the ever changing strictures of the ESG crowd / governments / regulation. In such an environment I would argue anyone with a strong view on future oil prices is better off investing in the commodity directly (whether long/short) without the additional baggage of a legacy out of favour business that is going to inevitably make ever more dubious capital allocation decisions in a doomed bid to placate ESG. As an aside Cranswick is my longest held share, which I have held in certificated form (whilst taking the SCRIP) since 2002. My initial investment (with dividends re-invested) is now up over 11x in the interim, comfortably beating the FTSE All-Share. I mention not to blow my own trumpet but just to underline the magic effect of long term compounding. I guess because it is certificated (and the initial investment was not large) I have never been tempted into selling. On the face of it the business is nothing special – capital intensive and with relatively low margins. But it has benefitted from exceptional managers over the years, who have made excellent capital allocation decisions (without resorting to dangerous leverage) whilst consistently growing the top-line. The LT result has been wonderful. Barring any potential environmental catastrophes (e.g. Swine Flu coming to the UK) or a massive switch to non-meat I believe it’s a great LT hold. Finally, and I don’t mean to criticise but surprised you had no comment on Unilever’s finals. Market clearly not overly impressed. They are clearly struggling to grow the top-line. Looks like there is lot more churn in their brand portfolio to come!?

    • comment-avatar

      Hi Phil, thanks so much for the very interesting comment.

      Re: RSDB – yes, it looks to me like a very big cigar butt type of stock!

      Huge congrats on Cranswick, especially for holding them over the long-term.

      I might comment on Unilever tomorrow, if that’s not too late.

      Thanks again – comments like yours really help to bring this report to life.

      See you in the morning.


  • comment-avatar

    Regarding Alumasc, there is still a pension deficit of £12.8m, almost 25% of the market cap, and it is not long since the facades section of the business was flogged off for what seemed a bargain basement price. The stock is thinly traded, and the spread is horrible. Senior management seem to have been classmates of Methuselah’s dad. The noises they have been making about seeking acquisitions do not fill me with any great confidence; I imagine they would seek to settle the bill in groats! I bought this as a value play in 2011 and still hold. How much longer that will be the case I don’t know>

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