In this article I'll have a closer look at Total (NYSE:TOT), a French oil and gas company. I'll start with the Q1 results and the company's balance sheet, and will then move on to the outlook for the company, its dividend policy and my investment thesis.
As Total is a French company, all numbers are in euros and are recalculated into USD at a fixed EUR/USD exchange rate of 1.30.
The Q1 financial results
Total reported a revenue of 63.5B USD [pdf], which is approximately 5% lower than the same quarter last year. The net income dropped by 58% from 4.8B USD to 2B USD, mainly because of an impairment charge of 1.25B EUR (1.625B USD) on the Voyageur project sale. Excluding all non-recurring events, the adjusted net profit was 3.8B USD, or a profit per share of 1.67 EUR, which was only 7% down from last year.
Of interest is the adjusted net profit of the refining and chemicals division, which was up 4% compared to Q4 2012, even though the European refining margin declined by 20% from $33.9/t to $26.9/t, which is still much higher than the $20.9/t in Q1 2012.
The Balance sheet
The company's balance sheet looks very robust, with a working capital of 19B EUR ( almost 25B USD) and a current ratio of 1.38 (everything above 1 indicates the company has sufficient current assets to cover the current liabilities).
Shareholders' equity (excluding minority interests) increased by 4B EUR from Q1 2012 to 73.8B EUR as of March 31, 2013. This equates to a book value per share of 31.2 EUR (or $40.56), meaning the company is currently trading at a premium of approximately 25% over its book value.
In this paragraph, I'll have a closer look at Total's net profit margin, its past earnings per share and the analyst estimates on the EPS for the next few years. As noted, all numbers in euro are being recalculated into U.S. dollar at a fixed 1.30 conversion rate.
As you can see, the net profit margin is expected to increase again, after reaching a low of 5.87% in 2012. For this year, the net profit margin should (based on analyst profit and revenue expectations) increase to a healthier 6.36%, and is expected to climb toward the 8% mark in 2015.
Net Profit Margin
The earnings per share should also increase from this year on. This table provides the expected EPS in both euro and dollar (using the 1.30 fixed EUR/USD rate). Based on the forward price/earnings, Total definitely isn't too expensive, as the company is only trading at 6.8X the expected 2015 earnings.
Expected EPS [EUR]
Expected EPS [USD]
Resulting P/E for the US listing
In this paragraph, I'll have a closer look at the company's dividend. Total currently pays a quarterly dividend of 0.59 EUR/share (approximately 0.77 USD), which results in a current gross dividend yield of approximately 6.36%.
The next table shows the influence of a changing exchange rate on the dividend in U.S. dollars. As you can see, the weaker the U.S. dollar, the higher the dividend will be.
Dividend in USD
In the next table, I'll calculate the gross dividend yield based on different share prices. I'll use the 3.07USD/share dividend under the base-case scenario with a EUR/USD exchange rate of 1.30.
Gross Dividend Yield
Finally, keep in mind France has a 30% withholding tax on dividends. Always consult your broker or tax consultant to find out if your country has a double tax treaty with France and what documents you need to fill in to ask for a (partial) refund of the French withholding tax.
Total is a very reliable oil and gas company, which has a proven track record and is making consistent multi-billion dollar profits. I expect the dividend at least to remain stable, and am hoping for a small increase in the near future.
It might be a good idea to write put options on Total as well, as buying the shares at a lower price can significantly increase the dividend yield. For instance, writing a put 42.5 for January 2014 yields an option premium of $1.40 (which is an annualized return of 5.6% if you don't get assigned the shares. If you do get shares assigned at 42.50, your dividend yield increases to 7.2%.
As Total is a very steady dividend payer with a dividend yield of in excess of 5%, I think it deserves a place in every income-oriented portfolio. Options can be used for additional returns.
I currently do not own shares in Total, but I wrote puts on various strikes and expiry dates on the Paris Stock Exchange.