Shell: A NYSE Listing Won’t Be A Game Changer (OTCMKTS:RYDAF)

Investment thesis

Shell plc (OTCPK:RYDAF) made headlines recently when CEO Wael Sawan mulled a New York listing as potential move to close the valuation gap with American peers like Exxon (XOM):

By mid-2025, if the valuation gap remains, then Sawan made clear nothing is taboo, including switching the listing to New York.

Source: Reuters

While Mr. Sawan’s comments on the valuation gap are spot-on, the current London listing isn’t the root cause of the problem. A more important reason for the discount to U.S. majors is likely Shell’s higher investment in renewables despite scaling back what were even more ambitious “green energy” goals.

As American capital already owns part of Shell, it’s also unclear if the NYSE listing would really attract that much incremental investment. Inclusion in the S&P 500 (SPY) may help but it can’t be achieved via the listing alone; Shell would also need to re-domicile in the U.S.

Nonetheless, the fact management is making the valuation gap a priority is already a good sign. Acknowledging the problem is always the first step even if the solution offered so far may be missing the point.

Shell’s discount to Exxon and Chevron is big

The valuation multiples of European majors like Shell or BP (BP) have lagged behind Exxon and Chevron (CVX):

Exxon’s forward P/E commands a 40% premium over Shell. Were Shell’s equity to reprice to the same level, that would imply a $90 billion increase to the market cap.

The price to book ratio implies even bigger discount:

Shell’s dividend yield is also higher:

However, the dividend yield gap isn’t as big and that may offer some clues.

The discount doesn’t make Shell “cheap”

Discounted multiples may be a necessary condition to identify potentially “cheap” equities but are hardly a sufficient one. My take is that investors are penalizing Shell for its greater focus on renewable energy that may drive lower ROI over time.

In 2023 Shell devoted 1/5 of its capex to renewables:

Compare this to Chevron’s 2023 budget which guides to $15.5 to $16.5 billion total capex of which $2 billion, or 1/8 will be spent on:

Lower carbon capex to lower the carbon intensity of traditional operations and grow new energy business lines.

Shell’s Wael Sawan has indeed signaled the company will prioritize more strongly profitability going forward:

Sawan has outlined plans to boost returns by maintaining oil output, growing the gas business and trimming less profitable parts of the company’s low-carbon portfolio established under his predecessor Ben van Beurden.

Source: FT

Nonetheless, renewables still take a central stage in the company’s earnings calls:

Last year, we invested $5.6 billion in low-carbon energy, such as our Nature Energy acquisition and the CrossWind JV, which will supply renewable power to Holland Hydrogen I, Europe’s largest electrolyzer. In short, we’re working hard to deliver the energy the world needs today and we’re helping to build the energy system of the future.

There may be nothing wrong with pursuing a renewables business but these initiatives tend to have a limited risk/limited return profile that is more typical of a utility (XLU). For example, there is no exploration risk while managing exploration is a core competency for any upstream company. It isn’t clear why Shell or BP would have any advantage in this space compared to say an Orsted (OTCPK:DNNGY).

Shell’s earnings growth has also lagged behind its U.S. peers:

This isn’t necessarily just due to renewables as Shell also has a different traditional energy profile with more focus on LNG but capital allocation decisions do drive future profitability.

Shell has a capital allocation not liquidity issue

Investing more in the less profitable renewables segment is a capital allocation choice, not a liquidity problem that can be resolved via a NYSE listing. Another European major, Equinor (EQNR) is already listed in New York. Yet, Equinor’s multiples look more like a Shell than an Exxon:

Interestingly, Equinor is also a big investor in renewables including offshore wind.

The NYSE listing could theoretically make Shell’s stock more accessible to American capital but according to Reuters estimates 40 of the 100 largest shareholders in Shell are U.S. investors. So the dollars that do want to get into Shell may already be there.

Getting included in the S&P 500 won’t automatically happen just through a NYSE listing either. The company would have to re-domicile and that would be a more complex process.

Bottom line

Shell, like the other European majors, trades at discount to its U.S. peers. The valuation gap is likely due to the company’s capital allocation choices and greater emphasis on renewables.

The NYSE listing idea floated to the media may improve liquidity marginally but is unlikely to unlock significant new capital that may be somehow sidelined by the London listing. Nevertheless, management’s focus on the valuation disparity is by itself a good thing and may ultimately drive changes to the capital allocation strategy too.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.