The case notes that the CEO of Shell intends to close a yawning valuation gap with US rivals.

a. Based on the graphic presented on page 2 of the article, comment on the method of valuation used, and discuss how Shells valuation in relation to its rivals in the Oil & Gas market. (15 marks)

b. Critically evaluate the price to cashflow valuation method used here as an alternative to earnings multiple (P/E) method of valuation. (20 marks)

US oil majors command higher multiples than their European rivals Price to 12-month forward consensus cashflow (x) Source fact In a set of commitments seemingly designed to appeal to many of the US investors gathered at the New York Stock Exchange, Shell emphasised plans to maintain oil production at current levels of 1.4mn barrels a day until 2030 and expand its giant liquefied natural gas business. It will also be more selective about the types of clean energy project it backs. "Ultimately what we need to do is to be able to generate long-term value for our shareholders," Sawan told the FT. "The answer cannot be, 'I am going to invest [in clean energy projects] and have poor returns and that's going to vindicate my conscience'. That's wrong." Since taking the top job Sawan has focused on how to close a yawning valuation gap with US rivals, which have remained more committed to oil and gas production and are valued at US oil majors command higher multiples than their European rivals Price to 12-month forward consensus cashflow (x) Source fact In a set of commitments seemingly designed to appeal to many of the US investors gathered at the New York Stock Exchange, Shell emphasised plans to maintain oil production at current levels of 1.4mn barrels a day until 2030 and expand its giant liquefied natural gas business. It will also be more selective about the types of clean energy project it backs. "Ultimately what we need to do is to be able to generate long-term value for our shareholders," Sawan told the FT. "The answer cannot be, 'I am going to invest [in clean energy projects] and have poor returns and that's going to vindicate my conscience'. That's wrong." Since taking the top job Sawan has focused on how to close a yawning valuation gap with US rivals, which have remained more committed to oil and gas production and are valued at