Royal Dutch Shell (RDSB) ... double dipping

Tuesday 19th May 2015

In March last, I took small turn in Exxon Mobil calls and a decent return in Royal Dutch Shell calls ... If it ain't broke.

On the RDSB trade I bought April £22 calls at 8.5 pence a lot and sold them a few days later at 22 pence. In the event, they continued to rally a fair bit higher. Having revisted RDSB, I can't help but reckon there's another chance of a similar trade. 

As the charts highlight below:

• The market reaction to the BG announcement, appears a little harsh. 
• In particular there's been a sizeable disconnect from BP, which historically has proven short lived. 
• RDSB can seemingly turn on a dime and rally sharply, typically c. 10% over a 2 to 4 week period. 
• On a consensus forward P/E basis, RDSB is the cheapest among a number of its peers; a 20% discount to the peer group average below. 
• Despite trading on a 20% P/E discount to the average of its peers, RDSB yields the highest prospective dividend according to Bloomberg's consensus; at c. 6%.  
• Its 200d moving average is at 2,258p/shr; 12% higher. 
• There may be some technical support at current levels; c. 2,000p/shr. 

On the basis of the above, I snaffled a few June £21.50 calls at 4.5p/lot. They seemed good value to me.

RDSB share price
Source: Bloomberg

RDSB as compared to BP/ - historically close correlation
Source: Bloomberg

RDSB - regularly rallies sharply,
average of 10% typically over 2 to 4 week period as highlighted in green above
Source: Bloomberg

RDSB forward P/E ratio as compared to peers -
a 20% discount to the peer group average above
Source: Bloomberg

RDSB prospect consensus dividend yield as compared to peers -
the highest yield as compared to peers above
Source: Bloomberg 

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