Share Prices & Company Research


17 April 2023

Stock Focus: Exxon and Shell

How is it possible for two companies with such similar profiles to trade with drastically different multiples?

Exxon Mobil and Royal Dutch Shell are both large oil producers and over the course of 2023 Shell is expected to generate around US$372bn compared to Exxon Mobil’s US$386bn. This 4% difference in expected revenue is not reflected in their respective valuations. Shell is trading on a 4.69 P/E (Price/Earnings) multiple, while Exxon Mobile’s is 7.67, over 50% higher.

Companies domiciled in the US have traded at a premium to their UK counterparts for some time; much of this trend can be explained by the heavy tech presence in the US. This industry has seen exceptional growth over the last decade as companies took advantage of cheap debt to fuel revenue growth. However, it is curious that two such similar companies can have wildly different valuations; both companies are well established, operate in the same sector, and generate a very similar amount of revenue, so why the price difference? To answer this, we must look not just at the trajectory of each company, but also at the market in which they trade.

Since 2016, UK companies have traded at a discount when compared to other developed markets. By 2019, discounts had widened to 25% as investors became concerned that a lack of access to the single market would negatively impact UK-domiciled companies over the long term. The discount is also partly due to the make-up of the FTSE 100, which is dominated by large banks, miners, and energy companies. The benchmark is heavily weighted in favour of these long established, dividend paying companies, with reduced prospects for growth.

Compare this to the US where growth and the promise of future earnings have dominated the S&P500 and Nasdaq indices for the last two decades and the problem becomes self-evident. Tech makes up only 5% of the UK’s total market capitalisation, whereas in the US the figure is closer to a third. The lack of growth in the UK naturally makes the entire market appear less appealing to return-seeking investors.

On top of this, pension funds in the UK have been steadily decreasing their equity allocations since the turn of the millennium and they now stand at a measly 25% of the total invested assets. As Defined Benefit plans close to new members and their members start to collect on their pensions, equity risk is simply no longer prudent. This has had the effect of artificially deflating the prices of UK companies as institutional investors have been net sellers. The same effect has not been felt across the pond, where equity allocations remain at an average of around 50%. Following from the liability-driven investing (LDI) crisis that nearly engulfed the UK pension industry last year it seems unlikely that trustees will opt to increase the risk associated with their funds at any point in the immediate future and as such, it seems unlikely that institutional funding will come to the rescue of UK listed companies.

Do these systemic factors justify the valuation gap between both Shell and Exxon? Well, partly - Shell has been caught between a rock and a hard place as it attempts to transition away from traditional fossil fuels and towards low and no carbon energy solutions. 50% of the company’s total capital expenditure is currently being directed into these new projects to ensure it is prepared for whatever the future holds. Despite the obvious logic underpinning this decision, it has alienated many US investors who have not faced the pressures that their European counterparts have when it comes to the environment. Shell, being a titan of the oil industry, also remains an unattractive option for those wishing to pursue a more sustainable investment strategy.

With interest rates rising and debt becoming more expensive, companies such as Exxon and Shell with strong cash flows are back in favour. At a glance, these companies appear remarkably similar yet, due largely to the countries in which they have been listed, their valuations are wildly different. One could make the argument that Shell has been punished by institutional investors for its listing location, but its UK base has arguably forced it to innovate and invest into low carbon energy solutions and this has set the foundations for company’s future success. Exxon, on the other hand, has benefited from the US’s attitudes towards oil production and the high concentration of equity held by institutional investors, but its high valuation is no guarantee of future performance. The company is also now arguably overexposed to a declining industry with no external motivation to change. Ultimately these companies are not quite as similar as they initially seem.

This article was taken from the March 2023 issue of Market Insight. To subscribe to our investment publications, please visit

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
Stock Focus: Exxon and Shell
We offer complimentary investment publications produced by our in-house Investment Research team. Please click here to view our range.