Total-Return to shareholders and low costs would justify a rebound – Reuters News
04-Apr-2018 18:00

“The sector does not follow the evolution of oil prices at all, it seems that everyone thinks that this cannot last and that prices cannot hold at such high levels”, believes Ion-Marc Valahu. “For now, a switch is missing’ investors from growth stocks to slightly more defensive stocks, and also the conviction that oil is at sustainable levels”, adds the manager, while emphasizing that Total is also suffering a discount linked to the accounting of its results in euros in a context of prolonged weakening of the dollar.

PARIS, 4 avril (Reuters) – Total TOTF.PA's new shareholder return policy and its cost reduction efforts would justify a rebound on the French group's stock market in a context of relatively firm oil prices, according to analysts and managers interviewed by Reuters.
Second European oil company by market capitalization behind the British Royal Dutch Shell RDSa.L, Total announced in February an increase in its dividend by 10% over three years, up to five billion dollars in share buybacks over the period 2018-2020, and its intention to neutralize the dilutive effect of the maintained option of a stock dividend. (Full Story)
Total was thus among the last European majors – with the Italian Eni ENI.MI – to implement measures long awaited by investors, sending a signal to the market of a desire to share the rise in oil prices with its shareholders while it now benefits from strong visibility on the progression of its cash flows.
The French group's shares have since shown a modest increase but are doing better than the sector in Europe and outperforming the American giants in the sector Exxon Mobil Corp XOM.N – which disappointed on the securities buyback front in early March (Full Story) – and Chevron CVX.N.
“Total took the time to know where the oil price was going before announcing a cautious dividend increase (…), combined with a share buyback program (…) which could be exceeded provided that the price of oil remains above 60 dollars”, estime Ahmed Ben Salem, analyst at Oddo Securities, to purchase the stock with a price target of 56 euros.
“What if the price of oil rises too much, Total will prioritize returns to shareholders rather than embarking on risky acquisitions”, he adds.
Total also seems to have a revaluation reserve linked to its savings program and the growth of its production.
The group has reduced its production costs to a level of 5,4 dollars per barrel 2017 against 9,9 dollars and 2014. It therefore wishes to continue to lower its organic breakeven point before dividend – that is to say the threshold from which the price of a barrel allows it to generate a cash flow equal to its organic investments – to bring it back to 25 dollars and 2018 (against 27 dollars and 2017).
He also took advantage of the fall in prices to acquire oil reserves at low prices or at low costs., particularly in the North Sea with the acquisition of Maersk Oil, thus consolidating the growth prospects of its production. (Full Story)
“Production growth is expected to significantly outpace competitors over the next three years and come from projects with high visibility and significantly better cash flow margins. Restructuring measures and higher free cash flow should lead to higher cash returns”, according to Cowen analysts.
However, the market continues to apply a fairly clear discount to Total compared to its competitors, the stock being traded 11,8 times the twelve-month forecast profit against 13,2 pour Shell, 14,6 for BP BP.L and 15,2 for Eni.
“You need a catalyst, that the market begins to recognize that the company has done its job well and that it can benefit as much as possible from the rise in oil prices. Perhaps we still need one or two quarters of results before it is validated”, believes Ion-Marc Valahu, fund manager at Clairinvest, who holds Total securities (2,5% from his wallet).
Ahmed Ben Salem also believes that, under the direction of CEO Patrick Pouyanné, Total “is making a lot of progress in terms of

The fact remains that Total's revaluation will ultimately depend on the performance of oil prices., the group having increased its cash sensitivity to variations in Brent to a planned level of 2,8 billion dollars for 10 dollars they variety you baril a 2018, against 2,5 billion in 2017.
And if the agreement to reduce production by OPEC members and countries outside the cartel allowed the barrel of crude to rise to around 70 dollars LCOc1 after having plunged from 110 to 30 dollars between 2014 and 2016, oil stocks have so far not benefited from this spectacular rebound.
“The sector does not follow the evolution of oil prices at all, it seems that everyone thinks that this cannot last and that prices cannot hold at such high levels”, believes Ion-Marc Valahu.
“For now, a switch is missing’ investors from growth stocks to slightly more defensive stocks, and also the conviction that oil is at sustainable levels”, adds the manager, while emphasizing that Total is also suffering a discount linked to the accounting of its results in euros in a context of prolonged weakening of the dollar.