Shell stock tumbles after disappointing results as activist investor Third Point calls for a breakup

“The rapid swings we’ve seen in oil & gas prices over the last 18 months mean the group has had to take a large write-down in the value of the derivatives it took to out hedge itself against a further price fall. These have officially pushed the group into a loss for the quarter. However, the underlying numbers, and particularly the all-important cash flow numbers, are looking far more upbeat,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown, in a note to clients.

Hyett pointed to Shell’s record quarter for operating cash flow that drew a big reduction in net debt. “The imminent sales of the group’s U.S. shale assets is set to strengthen the balance sheet still further while funding a bumper return to shareholders,” said the analyst.

Shell said its fourth quarter would likely perform better due to easing costs of maintenance, but that didn’t stop the selloff.

Investors were also juggling a report that hedge fund Third Point has amassed a more-than $500 million stake and wants Shell to split into two companies — one for legacy operations and another for renewables and other businesses that need substantial investment. Shell said it welcomes “open dialogue” with Third Point, which was founded by Dan Loeb.

While a breakup of Shell is part of a classic strategy by activist investors to unlock value in underperforming companies, the boardroom won’t welcome it, said AJ Bell investment director Russ Mould, in a note to clients.

That’s “especially as the cash flow currently being generated by the oil-and-gas operations will be a useful source of funding for the firm’s investments in alternative and renewable energy sources,” said Mould.

Not helping the energy sector was a fall in oil CL00, -0.75% BRN00, -0.82% and gas prices NG00, -5.45%. Natural gas prices in Europe and the U.K. GWMF22, -11.42% fell by 8% each after Russian President Vladimir Putin ordered companies to focus on refilling EU storage containers amid shortages that have been driving up prices for weeks.

The FTSE 100 index UKX, -0.08% slipped 0.2% to 7,234, with healthcare the best-performing sector, and shares of GlaxoSmithKline GSK, +4.18% GSK, +3.83% up more than 2%

WPP WPP, +8.16% WPP, +8.07% shares soared 6% after the global advertising and public relations giant reported a rise in third-quarter revenue and raised its full-year guidance. Citi analysts noted strong growth in its U.S. market, in particular.

“The key point is that this rate of growth is indicative of more than just a ‘dead cat bounce’ post COVID. To the extent that it reassures that WPP’s recovery is structural as well as cyclical, we think it will be taken well,” said a team of analysts led by Thomas Singlehurst.

Shares of Lloyds Banking Group LLOY, +1.49% LYG, +2.08% rose 1.5% after the bank said it nearly doubled pretax profit for the third quarter of 2021, beating market views.