Stock Analysis on Net

Royal Dutch Shell PLC (NYSE:RDSA)

This company has been moved to the archive! The financial data has not been updated since March 12, 2015.

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Royal Dutch Shell PLC, dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 15.60%
0 DPS01 3.72
1 DPS1 3.93 = 3.72 × (1 + 5.71%) 3.40
2 DPS2 4.19 = 3.93 × (1 + 6.46%) 3.13
3 DPS3 4.49 = 4.19 × (1 + 7.21%) 2.91
4 DPS4 4.85 = 4.49 × (1 + 7.95%) 2.71
5 DPS5 5.27 = 4.85 × (1 + 8.70%) 2.55
5 Terminal value (TV5) 83.05 = 5.27 × (1 + 8.70%) ÷ (15.60%8.70%) 40.24
Intrinsic value of Royal Dutch Shell PLC common stock (per share) $54.94
Current share price $58.66

Based on: 20-F (reporting date: 2014-12-31).

1 DPS0 = Sum of the last year dividends per share of Royal Dutch Shell PLC common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Royal Dutch Shell PLC common stock βRDSA 1.22
 
Required rate of return on Royal Dutch Shell PLC common stock3 rRDSA 15.60%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rRDSA = RF + βRDSA [E(RM) – RF]
= 4.43% + 1.22 [13.60%4.43%]
= 15.60%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Royal Dutch Shell PLC, PRAT model

Microsoft Excel
Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions)
Dividends paid 11,843 11,338 10,955 10,457 10,196
Income attributable to Royal Dutch Shell plc shareholders 14,874 16,371 26,592 30,918 20,127
Revenue 421,105 451,235 467,153 470,171 368,056
Total assets 353,116 357,512 360,325 345,257 322,560
Equity attributable to Royal Dutch Shell plc shareholders 171,966 180,047 188,494 169,517 148,013
Financial Ratios
Retention rate1 0.20 0.31 0.59 0.66 0.49
Profit margin2 3.53% 3.63% 5.69% 6.58% 5.47%
Asset turnover3 1.19 1.26 1.30 1.36 1.14
Financial leverage4 2.05 1.99 1.91 2.04 2.18
Averages
Retention rate 0.45
Profit margin 4.98%
Asset turnover 1.25
Financial leverage 2.03
 
Dividend growth rate (g)5 5.71%

Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).

2014 Calculations

1 Retention rate = (Income attributable to Royal Dutch Shell plc shareholders – Dividends paid) ÷ Income attributable to Royal Dutch Shell plc shareholders
= (14,87411,843) ÷ 14,874
= 0.20

2 Profit margin = 100 × Income attributable to Royal Dutch Shell plc shareholders ÷ Revenue
= 100 × 14,874 ÷ 421,105
= 3.53%

3 Asset turnover = Revenue ÷ Total assets
= 421,105 ÷ 353,116
= 1.19

4 Financial leverage = Total assets ÷ Equity attributable to Royal Dutch Shell plc shareholders
= 353,116 ÷ 171,966
= 2.05

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.45 × 4.98% × 1.25 × 2.03
= 5.71%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($58.66 × 15.60%$3.72) ÷ ($58.66 + $3.72)
= 8.70%

where:
P0 = current price of share of Royal Dutch Shell PLC common stock
D0 = the last year dividends per share of Royal Dutch Shell PLC common stock
r = required rate of return on Royal Dutch Shell PLC common stock


Dividend growth rate (g) forecast

Royal Dutch Shell PLC, H-model

Microsoft Excel
Year Value gt
1 g1 5.71%
2 g2 6.46%
3 g3 7.21%
4 g4 7.95%
5 and thereafter g5 8.70%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 5.71% + (8.70%5.71%) × (2 – 1) ÷ (5 – 1)
= 6.46%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 5.71% + (8.70%5.71%) × (3 – 1) ÷ (5 – 1)
= 7.21%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 5.71% + (8.70%5.71%) × (4 – 1) ÷ (5 – 1)
= 7.95%