Here’s what a FTSE 100 exit could mean for the Shell share price

Here’s what a FTSE 100 exit could mean for the Shell share price

The flag of the United States of America flying in front of the Capitol building

Image source: Getty Images

Currently above £28, the Shell (LSE:SHEL) share price trades within a few percentage points of a record high. The oil and gas giant is the FTSE 100 index’s largest company measured by market cap, valued at a whopping £182.4bn today.

However, Shell’s days as a FTSE 100 stock could be numbered. In recent days, Chief Executive Wael Sawan has mentioned the idea of abandoning a London Stock Exchange listing in favour of New York.

So, why might the firm consider such a move and what might the implications be for its share price?

Let’s explore.

Valuation concerns

The primary motivation behind a Shell move to the New York Stock Exchange would appear to be a feeling that its UK listing is damaging the company’s valuation.

A glance at the valuations of oil stocks on both sides of the Atlantic lends credence to these fears. Using their forward price-to-earnings (P/E) ratios as a gauge, Shell and BP trade at a discount compared to similar US companies, such as Exxon Mobil and Chevron.

Stock Forward P/E ratio
Shell 9.03
BP 7.62
Exxon Mobil 12.97
Chevron 12.38

The outperformance of US stocks in recent years over UK shares hasn’t been confined to the energy sector. The S&P 500 has eclipsed the FTSE 100’s returns by a considerable margin.

With a greater number of potential investors, a deeper capital pool to tap into, and arguably a more pro-business environment, it’s easy to see why an American listing could be an attractive option.

Factors such as Brexit and domestic political instability have acted a drag on UK stocks as a whole. These are headaches that Shell might rather avoid.

Ultimately, a US move could possibly boost the Shell share price if it translates into more investment in the firm. Undoubtedly, this would please shareholders.

A change of strategy?

There are potential strategic reasons behind a possible relisting too. UK regulations on ESG standards are generally seen as stricter than those in the US. This is a critical consideration for a business that relies heavily on fossil fuels for its revenue.

Last month, Shell softened its energy transition targets to reduce its carbon emissions. It’s now pursuing a 15%-20% reduction by 2030, compared to a previous aim of 20% specifically.

Perhaps the board’s thinking runs deeper than the valuation alone. If Shell’s ambition is to slow down its green transformation even further, a US listing would make sense.

Such a change of strategy could have a material impact on the future direction of Shell’s share price. Although higher profits would be the rationale, it exposes the company to the risk of losing investor confidence due to a lack of consistency.

Furthermore, it might increase the likelihood of climate-focused lawsuits being brought against the company. After all, Shell’s no stranger to environmental litigation in the present day.

Still a FTSE 100 stock for now

It’s important to note that nothing is confirmed and a move may not materialise. Investors seeking to capitalise on a potential relisting would be wise to bear this in mind.

Nonetheless, I believe Shell shares merit consideration from those who want exposure to the oil and gas sector, whether they’re part of the FTSE 100 or not.

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