(RDSA) Royal Dutch Shell Fortifies UK Retail Sites

The British unit of Royal Dutch Shell plc (RDSA) entered into an agreement with Rontec Investments LLP –– led by Snax 24 Consortium –– to acquire 254 petrol retail sites in the U.K. The purchase price of the deal was settled at $400 million or £240 million.

Management commented that this deal marks Shell’s single biggest expansion move in the petrol station network in England. It is expected to help the company significantly in distributing competitively priced fuels to more customers across the country.

The new stations, located mostly in the Midlands and South East of U.K., complements Shell’s existing setup of 1,150 fuel stations. These will also strengthen the company’s position in the nation as a leading retailer of fuels.

The agreement, pending regulatory and other conditions, is expected to close toward the end of 2011.

In an attempt to redesign its asset portfolio, Shell has embarked on a strategy to dispose low-profit generating properties and capture lucrative growth avenues. The expanding retail business market of U.K. provides ample opportunities for Shell to spread its horizon over other industry players.

The Hague, Netherlands-based Shell is a global energy company engaged in oil and gas exploration, production, refining and marketing with operations and assets across the globe.

Given Shell’s strong operational and production efficiency as well as contribution from numerous growth projects, we expect it to sustain the revenue and earnings growth momentum over the next few quarters.

However, Shell’s upside potential is restricted due to a volatile macro backdrop and international business risks. The company also faces stiff competition from peers such as BP plc (BP) and Exxon Mobil Corp. (XOM).

We are maintaining our long-term Neutral recommendation on the stock. Shell currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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