Total S.A. Looks Appealing with Capable Management, Secure Dividend

Buy-recommended Total S.A. (TOT) offers unlevered appreciation potential of 59% to estimated net present value (NPV) of $90 a share. On October 28, we reset NPV from $125 a share on the basis of a long-term oil price assumption of $75 a barrel, down from $100. Patience may be necessary as TOT stock price remains below the 200-day average of $73.

Released today, third quarter results displayed strength in unlevered cash flow (Ebitda) driven by crude oil and natural gas prices. Futures prices now look lower for the next four quarters. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.

Total’s upstream volume trend was better than for peers. The advantage becomes less if it is considered on a per share basis because the French major has reduced shares outstanding by repurchase less than peers. Downstream operations have tracked that of peers with less volatility. We like Total for geographical diversification, financial strength, capable management, a 5.3% secure dividend and a low McDep Ratio of 0.63 amid a range of 0.60 to 0.83 for six major oil companies.

Originally published on November 5, 2008.