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Total: Undervalued Oil Giant With Secure 5% Dividend Yield
- Total's stock price has declined by double-digits this year, due to the ongoing collapse in oil prices.
- Total is also suffering from exposure to deteriorating economic conditions in Europe, and the death of the company's Chief Executive Officer.
- However, Total's underlying business remains strong, evident from its high returns on capital and resilient profits during this difficult time.
- Total is now a cheap and undervalued stock with a solid 5% dividend yield that pays investors well to wait for business conditions to turn around.
- Total kept the damage limited as its profit fell at a slower rate than the oil price.
- No real surprises here as one simply can’t expect a lower oil price to lead to higher revenues and profits.
- I’d be interested in Total if it dips again, unless I don’t like the strategy of the newly-appointed CEO.
Total: The Strategy Set By Christophe De Margerie To Continue
- TOT reported another solid quarter.
- The new CEO repeated the strategic targets of the group.
- After a period of heavy investment, TOT’s new projects should deliver a significant boost in both production and cash flow and in turn free cash flow.
Total: Story Remains One Of The Most Compelling In The European Sector
- 2014 was the low point for Total in terms of production and cash flow.
- The company is set to start a transformational period of three years where it will deliver significant growth in both production and cash flow.
- An elevated yield and urgency on part of management to improve results make TOT a compelling investment opportunity.
- Total is rumored to have hired Scotiabank to explore a sale of its 17% stake in the Tahiti oil field.
- This is unexpected, although Total had said before it is looking to divest more assets, so I shouldn’t be too surprised.
- The investment thesis doesn’t change for now, unless Total receives much more/less than anticipated.
Update: Total Starts Plan B In Its Exploration Efforts
- Total has convinced Murphy Oil’s Kevin McLachlan to join the company as VP Exploration.
- As the past few years were disastrous for the exploration division, something had to be done and a shake up isn’t really a surprise.
- The investment thesis remains unchanged, but I might change my opinion should Total buy some interesting projects to expand its portfolio.
- Total is in talks with Rubis to sell its 50% stake in the SARA refinery on Martinique.
- This could have been expected, as Total is looking to raise $10B by selling assets next year.
- As Total is a large conglomerate, the investment thesis would not be impacted by the sale of half a small refinery.
Update: Total Will Not Meet Its 2017 Production Target
- Total’s updated guidance is pointing in the direction of a 7% lower production rate, but it reiterates the free cash flow guidance.
- This was unexpected, as I was actually counting on the production increase towards 3 million barrels per day.
- The investment thesis should remain unchanged as long as the company will generate $15B per year in free cash flow.
- Total has received an offer to sell its adhesive subsidiary for $2.25B.
- This shouldn't come as a surprise, as Total has previously announced it was looking to divest some assets.
- The investment thesis doesn't change for now, but I'll have to have a closer look at the lower production expectations.
- French oil major Total has recently updated its cash flow and production outlook through 2017, which wasn't encouraging.
- The company's turnaround has been hit by project delays and asset sales.
- Is it time to give up on this company?
- Morgan Stanley analysts suggest that Total is the global “top pick” as it offers an attractive combination of free cash flow growth and dividend yield.
- The company described 2012-14 as a transition phase that will lead to a better phase during 2015-17 in which the company’s free cash flows are projected to increase.
- As a part of its transition phase, the company introduced a $15 billion to $20 billion asset sale program throughout 2012-14 anticipating an enhancement in free cash flows.
- The upstream projects would offer highly competitive returns and strengthen Total’s position as an industry leader in deep offshore and LNG.
- To enhance its operating cash flows, Total is also working on reducing its capital expenditures and cutting its operating costs.
- TOT has underperformed the wider European oil sector in the last few months.
- Weak cash flow numbers reported in 1H14 played a major role in this underperformance.
- However, 2Q14 was the low point for TOT both in terms of cash flow and production, and both are expected to improve from here on.
First Half Of 2014: Total S.A. Leading The Oil Giants
- Total's 2014 record is better than its peers.
- The dividend yield is attractive, and I believe distributions will grow.
- The company's mid-term outlook is promising.
- We pitch two companies from the oil and gas sector, Chevron and Total, against one another in the latest installment of our Head-To-Head series.
- The article focuses on the relative strengths and weaknesses of Chevron and Total based on business performance and sustainability/dividends/forecasts.
- It ends with discussion of the current valuations of the two companies, and details whether Chevron represents good relative value at current price levels.
Total SA's Ambitious Goals Are A Good News/Bad News Proposition
- Total SA has ambitious goals to increase production, trim spending, improve the downstream ops, and generate substantially better returns in the coming years.
- Total starts this plan with good reserves, solid production costs, and meaningful technical expertise, but a heavy reliance on complex projects does increase execution risks.
- A DCF-based valuation isn't so compelling, but Total scores more favorably on EV/EBITDA.
Total: Increasing Production Volumes And Cutting Costs
- Production volumes are expected to increase by 4% Y/Y.
- Capex at the same time is expected to fall by approximately 8% in 2014.
- Launched a new cost cutting program throughout the company.
Why Total Is Likely To Continue Outperforming Exxon And Chevron
- While capital expenses have greatly escalated for the oil companies in the last few years, Total seems to be better positioned than Exxon and Chevron.
- As Total provides detailed figures for its projected 30% increase in oil production by 2017 and its recent record is on track, it is likely to accomplish its goal.
- Based on Total's projection, we calculated that its earnings per share will increase by about 30% in 2017, which means a compounded annual return of 12% till 2017.
- Given the above and the great difficulties Exxon and Chevron are having in replenishing their oil reserves, Total is likely to continue outperforming Exxon and Chevron.
Total Is A Solid Income Investment After Year-End Results
Fri, Jan. 23, 2:58 PM
- As investors come to terms with the ~20% drop in shares of European oil company shares since last June, their focus will now turn to how the companies will maintain cherished dividends while coping with the collapse in oil prices.
- So far there is no hint of any major oil companies scaling back their dividend payouts, which long have been the key attraction for investors; BP's Bob Dudley says the dividend is "rock solid," and CEOs at Total (NYSE:TOT) and Eni (NYSE:E) also recently said they would maintain dividends.
- Analysts at Nomura and Barclays foresee an average 7% Y/Y decline in 2015 spending for the European oil majors, but with a large part of this year's project spending already committed, borrowing is inevitable to keep up dividend payouts.
- Shell (RDS.A, RDS.B) is seen by several analysts as best able to cope in the current environment, as its refining segment benefits the most from lower crude prices; Barclays expects Shell's Q4 EPS to rise by 29% Y/Y.
Wed, Jan. 21, 11:57 AM
- Total (TOT +2.7%) says a search for oil and gas off Cyprus has failed to find any potential fields to warrant any drilling, but is talking to authorities on possibly continuing with more exploration work.
- TOT is licensed to drill in two blocks off the island's southern coast, adjacent to an area where Noble Energy discovered a field estimated to contain between 3.6T-6T cf of gas.
- Earlier: Total to cut 2015 capex by 10% but vows surgical response to oil slide
Tue, Jan. 20, 2:26 PM
- Total (TOT -0.9%) will reduce capital spending by a larger than expected 10% in 2015 from $26B last year, CEO Patrick Pouyanné says, including a 30% cut in its exploration budget to less than $2B.
- Pouyanné tells FT that his response to tumbling crude oil prices will be surgical rather than drastic, selling some less profitable development projects and delaying others, and "nobody will be fired" despite what is sure to be a contentious restructuring of TOT’s troubled refining business in France.
- Two costly oil sands developments in Canada will be put on “a long backburner” and proposals to sell $10B in assets by 2017 will be accelerated, the CEO says.
- Pouyanné says his central aim is to reduce TOT's break-even price by $40/bbl.
Thu, Jan. 15, 8:39 AM| Comment!
Wed, Jan. 14, 11:13 AM
- The energy sector (XLE -1.5%) heads lower and is now underperforming the broader market after the EIA reported a bigger-than-expected build in WTI stockpiles; the news initially sent crude lower, although it is now +0.1% at $45.94/bbl; natural gas +5.7%.
- Crude inventories are now at their highest level for this time of year in at least the past 80 years.
- Among oil majors: XOM -1.5%, CVX -1.4%, RDS.A -2.5%, BP -2.3%, COP -1.5%, TOT -0.3%.
- ETFs: UNG, USO, OIL, DGAZ, UGAZ, UCO, BOIL, SCO, GAZ, BNO, UGA, DTO, DBO, KOLD, UNL, UWTI, USL, DWTI, DBE, DNO, DCNG, RJN, SZO, OLO, JJE, ONG, RGRE, TWTI, OLEM, UBN
Fri, Jan. 9, 2:37 PM
- Chief Investment Strategist Michael Hartnett makes the case for European energy stocks, U.S. banks relative to Canadian ones, and solar.
- "Unloved European energy is trading at record valuation lows vs. U.S. energy," says Hartnett, noting a 5.5% yield provides a lot of protection against dividend cuts. U.S.-listed ETFs, however, don't include anything dedicated to European plays, so there's the Paris-listed SPDR MSCI Europe Energy UCITS ETF, which has Shell (RDS.A, RDS.B) and Total (NYSE:TOT) among its top holdings.
- It's no surprise Canada is far more exposed to energy than the U.S., and Hartnett notes more than 40 rigs have recently been taken offline, oil sands production is winding down, and the bubbly Canadian housing market is creaking (Canadian property REITs are off 20% in the last two months). Going long the KBWR or KRE vs. a short in the Toronto-listed Capped Financial Index could be a way to play.
- Solar has been punished alongside oil prices, says Hartnett, but competes with gas rather than oil. "The secular trend toward greater solar energy generation remains intact." ETFs: TAN, KWT
Thu, Jan. 8, 12:06 PM
- Big oil companies including Exxon (NYSE:XOM), Shell (RDS.A, RDS.B) and BP soon must decide whether to risk upsetting investors by cutting dividends, risk earnings by cutting projects, or take on more debt in the hope that oil prices will soon recover, according to a WSJ report.
- A Citi analysis shows spending on dividends and capital investment was 24% higher than cash flow in 2013; Shell, for example, had $40B in net cash flow in 2013 but its capital spending and dividend payments outstripped cash flow by 36%, while XOM's shareholder payouts and investment are seen exceeding cash flow by 22% in 2015.
- Estimated capex and dividends also are expected to exceed cash flow by 20% or more this year at ConocoPhillips (NYSE:COP), Chevron (NYSE:CVX), Eni (NYSE:E), Total (NYSE:TOT) and BG Group (OTCPK:BRGXF, OTCQX:BRGYY).
Wed, Jan. 7, 10:58 AM
- Total (TOT +1.1%) says it has completed the flare-out at its Ofon field offshore Nigeria, and will instead monetize the resource through the liquefied natural gas market.
- TOT says the milestone at Ofon will allow for the gradual increase of production towards the 90K boe/day production target through monetization of ~100M cf/day of gas, followed later in 2015 by the drilling of additional wells.
- TOT adds that the flare-out also is significant for its environmental targets, representing a 10% reduction in its E&P flaring.
Mon, Jan. 5, 2:44 PM
- Chevron (CVX -3.8%) is downgraded to Neutral from Buy at Citigroup after outperforming big oil peers in the past three months in a reflection of the resilience of CVX's balance sheet.
- Citi revises its earnings forecasts to reflect lower oil prices, and says the stock now offers little upside in absolute and relative terms, "certainly when balanced against a portfolio that still carries uncertainties around both execution and reinvestment."
- The firm also downgrades Eni (E -8.6%) and Repsol (OTCQX:REPYY -5.8%), whose business models and valuations will look more challenged in a lower oil environment, but prefers companies it says boast strong growth credentials, such as BG (OTCPK:BRGXF), Total (NYSE:TOT) and ConocoPhillips (NYSE:COP); it keeps Exxon (XOM -2.6%) at Neutral, thinking share buybacks likely will be dialed down to preserve the balance sheet for a prolonged period of lower prices or eventual acquisitions.
Mon, Jan. 5, 12:39 PM
- ConocoPhillips (COP -4.8%) says it is flowing its first barrels of oil from the Eldfisk II project in the Norwegian North Sea, in the company’s second big startup off the coast of Norway since late 2013.
- COP says its newly productive project, alongside its other Norwegian offshore wells, will boost its output by 60K boe/day by 2017, and plans to drill 40 new water-injection and oil wells at its Norwegian field over the next three years.
- The Eldfisk field is one of four offshore oil regions that make up Norway’s Greater Ekofisk Area, operated by COP and co-owned with Total (NYSE:TOT), Eni (NYSE:E), Statoil (NYSE:STO) and others.
Mon, Jan. 5, 12:18 PM
- Energy stocks severely underperform the broader market, with the sector -4.2% vs. the S&P 500's -1.4%, as U.S. oil prices briefly slip below $50/bbl for the first time since April 2009; Nymex crude recently was -4.4% at $50.37, while Brent crude -5.9% at $53.08.
- Among the day's biggest losers: DNR -9%, RIG -7.6%, NBR -4.8%, CHK -5.9%, SDRL -9.1%, SD -12.3%, NOV -5.9%, PSX -6.2%, APA -5.9%, DVN -4.4%, EOG -6%, SU -5.2%, OXY -4.2%, APC -8.7%, PWE -9%, ECA -5.5%, MRO -5.3%.
- Global oil majors, which have been seen as less vulnerable to falling oil prices, are posting big losses: XOM -2.7%, COP -4.5%, CVX -3.8%, BP -5.8%, RDS.A -4.6%, TOT -6.5%.
- ETFs: USO, XLE, OIL, UCO, ERX, VDE, OIH, SCO, XOP, ERY, FCG, DIG, PBW, BNO, GASL, DTO, DBO, DUG, IYE, XES, IEO, QCLN, IEZ, UWTI, PXE, USL, PXI, FENY, DWTI, PXJ, DNO, PSCE, RYE, SZO, PUW, FXN, OLO, DDG, HECO, TWTI, OLEM
Fri, Jan. 2, 2:30 PM
- As many as 16 oil sands’ projects worth nearly $60B that have not yet received corporate sanctioning may be deferred if current oil prices persist, according to upstream research analysts at Wood Mackenzie.
- Key projects the firm expects to come on line by 2017 include the 165K bbl/day Fort Hill venture owned by Suncor (NYSE:SU), Total (NYSE:TOT) and Teck Resources (NYSE:TCK); Canadian Oil Sands' (OTCQX:COSWF) 100K bbl/day Mildred Lake replacement project; Imperial Oil’s (NYSEMKT:IMO) 110K bbl/day Kearl Phase 2; ConocoPhillips' (NYSE:COP) 109K bbl/day Surmont Phase 2; and Shell’s (RDS.A, RDS.B) 100K bbl/day Jackpine expansion.
- Projects expected to face delays include Cenovus Energy’s (NYSE:CVE) Christina Lake Phase H and its Narrows Lake Phase A; expansion work at Husky Energy's (OTCQB:HUSKF) Sunrise SAGD plant; and PetroChina’s (NYSE:PTR) MacKay River project.
- Most analysts expect a 10%-15% drop in capex for Canadian energy producers in 2015, with bigger cuts perhaps coming as the year unfolds to rival 2009's 20% capex decline.
Dec. 22, 2014, 3:23 PM
- S&P revises its outlook to negative for BP, Royal Dutch Shell (RDS.A, RDS.B) and Total (NYSE:TOT), as it cites “the dramatic deterioration in the oil price outlook” in forecasting still more negative free cash flow in 2015 extending possibly into 2016, given fairly inflexible capital expenditure and high dividends.
- S&P says debt and dividends for Europe's oil majors have increased 50%, leaving them less flexibility in dealing with a cash crunch; BP has an indicated dividend yield of 6.85%, followed by 5.7% for TOT and 5.25% for Shell.
- S&P also says it may cut the ratings on Eni (NYSE:E) and BG Group (OTCPK:BRGXF, OTCQX:BRGYY).
Dec. 16, 2014, 9:11 AM
- Total (NYSE:TOT) says it will delay drilling for oil and gas off Bulgaria's Black Sea coast by at least six months until early 2016 following the fall in global oil prices.
- TOT, operator of the offshore 1-21 Han Asparuh block, says it has cancelled tenders for drilling services in a decision agreed with its partners in the block, Austria's OMV (OTC:OMVJF) and Spain's Repsol (OTCQX:REPYY, OTCPK:REPYF).
- The drilling of a deepwater well in the block is estimated to cost ~€300M ($376M).
Dec. 15, 2014, 5:49 PM
- Canadian heavy crude is trading below US$40/bbl for the first time in five years, just as a surge of 14 new oil sands projects with a combined capacity of more than 266K bbl/day are scheduled to start next year.
- Oil sands projects scheduled to start next year include ConocoPhillips (NYSE:COP) and Total’s (NYSE:TOT) joint 118K bbl/day Surmont project and the 40K bbl/day expansion of Cenovus Energy’s (NYSE:CVE) Foster Creek project.
- Analysts say while oil sands producers may curtail future development, most existing operations will not be shut and those under construction will go ahead because of the investments involved and potential harm to future output; profitability for all but the lowest-cost producers will be squeezed, as Canadian crude produced from oil sands is some of the world’s most expensive to produce.
Dec. 12, 2014, 12:27 PM
- China's Cnooc (CEO -0.9%) says the development of its $2B Kingfisher oil field in Uganda remains on course, and that on-site activity, including test drilling and construction of access routes to the 635M bbl field, are progressing well.
- Tumbling global crude prices have raised concerns that some projects in east Africa may be put on hold; the region accounted for ~25% of new oil and gas discoveries worldwide over the past four years.
- Cnooc co-owns the field with Tullow Oil (OTCPK:TUWLF, OTCPK:TUWOY) and Total (NYSE:TOT).
TOT vs. ETF Alternatives
Total SA is an integrated oil and gas company. It explores and develops oil and gas properties, liquefied natural gas, petrochemicals and specialty chemicals. It is also engaged in trading and shipping of crude oil and petroleum products.
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