Shell plc (SHEL)

Total return at 5 years: 3.7%/year = 0.3% appreciation + 3.4% dividend. The target price ($103) is ex-dividend; the $18 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($102) and the other below.

Today — expensive, no margin of safety: at $102 trades ~3.6% above its value discounted to today (~$98); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($103) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$63.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($102) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-7.3%/year) than we project (1.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$13.1 bn of owner earnings in year 5 (vs ~$20.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Utilidad neta atribuible mid-cycle (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = the fiscal year ended 31-Dec-2025, not a rolling twelve-month window: Shell files an annual 20-F and publishes its quarters on 6-K, which carry no XBRL, so the quarter does not exist as tagged data (the method's annual reporter convention). The year-0 levels come from the income statement and the cash flow statement of the 20-F: revenue 266,886, pre-tax income 29,756, interest expense 4,671 (from which operating income 34,427), earnings attributable to Shell shareholders 17,837, operating flow 42,863, cash capex 20,915 and depreciation, depletion and amortization 25,299. This last line was taken from the income statement and not from XBRL: the IFRS taxonomy concept was left with its last fact in June 2019, six and a half years behind the rest of the core, so its window is not that of the current period and it cannot be used to compute margin, free cash flow or owner earnings. It was not replaced with a neighboring concept. Mid-cycle normalization: attributable earnings of the last three fiscal years were 19,359 (2023), 16,094 (2024) and 17,837 (2025), whose average is 17,763 — that is fiscal 2025 is already practically at the cycle average and does not need shifting. The year 2022, at 42,309, is the peak and is deliberately left outside the anchor. The company corroborates the level with its own adjusted measure of 18,500 million for 2025. The price of crude and gas is implicit in the midpoint of the mid-cycle range that produces those earnings, never at the top. Revenue path: the 20-F trajectory is declining (−17.0%, −10.2% and −6.1%), but the first half of 2026 already reported in the 6-K shows third-party revenue of 164,355 against 134,640 a year earlier, that is +22.0%. That jump is almost all marketing and products —Marketing +24% and Chemicals and Products +34%— while oil and gas production fell 16% on the impact of the Middle East conflict on Qatar volumes. Since the revenue of an integrated company is largely a gross intermediation figure that moves with the commodity price, the strong half is not extrapolated: year 1 is set at 282.0 (+5.7%), which implies a second half of 2026 approximately in line with the second half of 2025, and the path decays smoothly to 1.8% by year 5. That end point is anchored in what the company itself guides to 2030 —total production growing around 1% a year and liquefied natural gas sales 4-5% a year, with liquids stable at 1.4 million barrels a day— on a flat price curve. Net margin: 6.68% in year 0 and 6.85% at year 5. The expansion is deliberately modest because the structural cost reduction program has already accumulated 5,825 million from 2022 to the second quarter of 2026 (of which 690 in the first half of 2026) against a target of 5,000 to 7,000 million by the end of 2028, that is most of the savings is already in the base. Year-1 capex is set at 25.0, the midpoint of the guidance of 24,000 to 26,000 million for 2026, and returns afterward to the band of 20,000 to 22,000 million of the 2025-2028 financial framework. Share path: a single one for all three scenarios, because it comes from the net reduction already revealed and not from a policy that varies with the cycle. Ordinary shares went from 7,410.5 to 5,948.6 million between 2022 and 2025 (−6.5% in the last fiscal year); the record is written in depositary certificates, each equivalent to two ordinary shares, so year 0 is 2,974.3 million. A net reduction of around 3.2% a year is projected, below the revealed pace: the annualized buyback at the level declared in the 6-K (3,000 million in the second quarter of 2026) is 12,000 million against free cash flow of 21.9 and a dividend of some 9.0, and the pending acquisition of ARC Resources for 13,600 million consumes part of that capacity. The surplus is imputed through share retirement and is not accumulated as cash, never both. The model is at the equity level: attributable net income is valued, which already pays the interest on the debt, so cash and debt are set to zero in the common block and no enterprise-value-to-equity bridge is built. The base case multiple is not set in one go on the consolidated figure: it is derived from the blend of the five parts, each with the multiple of its own nature.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $103 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $102, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $103 in 5 years plus $18 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $98. Against the current market price ($102), the margin of safety is -3.6% (trades above the maximum → a premium is paid) and the total return at that price would be 3.7% annually.

• Entry multiple. 17× on mid-cycle earnings, compressing to 14× by year 5. It is within the energy archetype band, not below it.
• Total return. +4% estimated annually, of which +3% comes from the dividend and +0% from price appreciation: cash returns provide the return, not the business.
• Margin of safety. -62% against the maximum price that would leave a 15% annual return. The price already reflects the cash-flow recovery and the buyback.
• Consistency of the two lenses. The present-value lens yields a noticeably higher value than the multiples lens. The difference is structural —perpetuity at the risk-free rate against exit multiple— and not a finding about the company.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (122%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 9.1% return on invested capital, below the 10% bar. It is the economics of the business: price set by the market over a capital base of hundreds of billions.
• Cash generation. Operating cash flow of 42,863 in a weak fiscal year, covering cash capex 2.0 times. Cash generation is strong; what falls short is the return on accumulated capital.
• Predictability. Low by design: attributable income was 42,309, 19,359, 16,094 and 17,837 million over four consecutive fiscal years. That is why the anchor is the cycle average and not the latest year.
• Reinvestment runway. Narrow: the company's own guidance is stable liquids production at 1.4 million barrels per day and total production growing around 1% through 2030. The growth is in liquefied natural gas and in costs.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The drivers of an integrated player are volume and price, and only volume is under the company's control. Proved reserves are the asset from which future production comes, and their decline from 9,787 to 8,123 million barrels of oil equivalent in two years is the heaviest signal in the picture. Production available for sale and refinery throughput measure utilization of the installed base: both are flat or slightly down, so the earnings improvement of the first half of 2026 came from margin and not from volume. The commodity price is not projected: it enters at the midpoint of the mid-cycle range that produces year-0 normalized earnings.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue trajectory. Three fiscal years of decline (−17.0%, −10.2% and −6.1%) due to price, with a 22.0% rebound in the first half of 2026 that is not extrapolated because it comes from trading.
• Volume. Production available for sale from 1,038 to 1,022 million barrels of oil equivalent and refinery throughput from 1,258 to 1,243 thousand barrels per day: flat or slightly down.
• Liquefied natural gas. Liquefaction volumes up 17% in the first half of 2026 on LNG Canada, with the company's own guidance of 4-5% annual sales growth through 2030. It is the group's only volume driver.
• Reserves. From 9,787 to 8,123 million barrels of oil equivalent over two fiscal years; of the 1,497 decline in 2025, 1,203 was divestments and the Canada oil sands swap, and organic replacement was 73% (776 of additions against 1,070 of production).

• Ten-year relevance. Demand for hydrocarbons and liquefied natural gas remains the core of the energy system, but the company itself discloses the transition as a structural demand risk.
• Differentiated product. The company acknowledges that many of its products compete in commodity markets where differentiation is difficult. The exception is lubricants and mobility, where there is a brand.
• Pricing power. Nil in crude and gas: the world market sets the price. Partial in marketing, where the unit margin is its own.
• Operating leverage. High and in both directions: the first half of 2026 shows adjusted earnings growing much faster than volumes, which were flat or down.
• Capital cycle. Financial capital is withdrawing from the sector —some institutions already limit their exposure to fossil fuel projects— which compresses future supply and favors whoever already holds the assets.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)7.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 122% of ROIC
• ✕Value creation (ROIC − 10% bar)-1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• !Float / working capitalConsumes cash $1.8 bn (positive WC)
• –Dilution (SBC % of revenue + shares)no data

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Net debt. 75,643 in gross debt against 30,216 in cash: 45.4 of net debt over an attributable equity of 174,392.
• Interest coverage. Operating income of 34,427 covers interest expense of 4,671 by 7.4 times.
• Capex coverage. Operating cash flow of 42,863 against cash capex of 20,915. Year 1 carries the guidance of 24,000 to 26,000 million, which tightens the surplus.
• Pending commitments. The 13,600 million ARC Resources acquisition, with closing expected in the third quarter of 2026, forced a temporary buyback suspension that has already been lifted: the July 30, 2026 6-K announces a new 3,000 million program plus the 1,200 million not executed from the previous one.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Allocation measured on the reported cash uses for fiscal year 2025 (20-F): cash capex 20,915, cash dividends 8,500, share buybacks 13,900 and investments in joint ventures and associates of 1,886. Almost half goes back to the subsurface and to the plants, and somewhat less than a third is directed to retiring shares. The buyback suspension tied to the pending ARC Resources acquisition was temporary: the July 30, 2026 6-K announces its lifting, with a new 3,000 million program plus the 1,200 million not executed under the previous program.

• Capital allocation. Explicit framework: capex of 20,000 to 22,000 million annually between 2025 and 2028 and distributions of 40% to 50% of operating cash flow through the cycle, with ongoing portfolio pruning.
• Cash returns. Ordinary shares from 7,410.5 to 5,948.6 million over three fiscal years, with a growing dividend: conduct matches the discourse.
• Cost discipline. 5,825 million in structural savings accumulated since 2022 through the second quarter of 2026 against a target of 5,000 to 7,000 million for 2028, around 60% from operational efficiencies.
• Disclosed alignment. No DEF 14A proxy as a foreign private issuer: there are no verifiable director and officer holdings in the available filings. The gap is disclosed rather than estimated.

• Apparent cycle trough: three consecutive fiscal years of revenue decline (−17.0%, −10.2% and −6.1%) and attributable income that in 2024 touched 16,094 million against 42,309 in 2022.
• Structural sector discount: the market applies a low multiple to hydrocarbons due to the energy transition and climate litigation, with the Milieudefensie case still on appeal before the Dutch Supreme Court.
• Proved reserves declining from 9,787 to 8,123 million barrels of oil equivalent in two years, which the market reads as a shorter asset life.
• The temporary buyback suspension due to the pending ARC Resources acquisition was already lifted in the July 30, 2026 announcement, with a new 3,000 million program plus the 1,200 million not executed from the previous one, so the mechanism through which shareholders had been receiving most of their return remains in place.

The price is not at its trough: this section answers why the market pays this price rather than why it is cheap. The source of the sector discount is identifiable and positive —energy transition, climate litigation and more expensive financing for fossil fuel projects, all disclosed in the filing itself— but the discount appears reasonably priced in rather than overpriced: at a 9.1% return on capital, declining reserves and terminal growth near 2%, the low multiple points to an intrinsic value that is likewise contained. Events after the fiscal year-end that the 20-F does not contain and that are disclosed here: the pending ARC Resources acquisition with closing expected in the third quarter of 2026, the completed sale of Jiffy Lube International on June 30, 2026, and the agreed sales of Na Kika and Solenergi Power.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-30% total): the margin of safety protects the downside. The bull (+13%/year, +82% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Commodity price. In low-price environments, Integrated Gas and Upstream can become unprofitable and trigger accounting write-downs of reserves and impairments, something the company states has already occurred.
• Energy transition and litigation. The Milieudefensie case remains on appeal before the Dutch Supreme Court after the court-ordered emissions reduction obligation was overturned in 2024.
• Reserve replacement. 8,123 million barrels of oil equivalent of proved reserves; 2025 organic replacement was 73% (776 of additions against 1,070 of production), and the rest of the year's decline came from divestments and the Canada oil sands swap.
• Trading. Market risk that cannot be fully mitigated; derivative hedging has already failed in the past and there is a recognized risk of ineffective controls.
• Safety and environment. Four fatalities and four serious injuries in 2025. The frequency of fatality and permanent-harm incidents worsened, from 1.7 to 2.1 cases per 100 million hours worked, although the count of those incidents remained flat at 8; a spill or explosion could cost the license to operate.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 2% at a PEG of 11.3 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 11% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -7% vs our 2%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: efficient scale, cost advantage, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -7%, within what we project (2%) — the story squares with the numbers.