European Oil A Buy: Beaten Down By The Credit Crisis, Libyan Situation Improving, Great Dividends

|
Includes: BP, CVX, E, RDS.A, TOT
by: David White

The EU credit crisis has pushed most European equities down considerably. The DAX is down -21.20% year to date. The CAC-40 is down -21.92% year to date. This is after two big up days of recovery. European oil companies have been beaten down by this overall EU equities fall. Total SA (NYSE:TOT) is down -16.03% year to date. Eni SpA (NYSE:E) is down -12.30% year to date. Royal Dutch Shell plc (RDS-A) is down -0.33% year to date. BP plc (NYSE:BP) is down -12.47% year to date. By way of comparison big U.S. oil major, Chevron Corp. (NYSE:CVX), is up +7.96% year to date. That is still far off its high of the year. The recent fall in oil prices has hurt major oil E & P company prices too.

All of the land based oil resources of foreign oil companies in Libya were lost for the duration of the revolution. This is over. Now the oil companies are trying to get their assets back. They are maneuvering for access to future contracts. This should mean enhanced prospects for the European oil companies involved. President Sarkozy has purportedly negotiated a promise of 35% of all future oil contracts to France. Total will get the bulk of these. The ENI CEO negotiated an agreement with representatives of the National Transitional Council (NTC), the rebels, for ENI to reassume control over a gas pipeline and oil production in the regions of Misla and Sarir in the east of Libya. In return ENI will provide the rebels with gasoline as well as technical assistance for oil production. The agreement states that ENI and NTC will create the conditions for a rapid and complete reactivation of ENI’s full activities in Libya. They are to do everything necessary to resume operations of the Green Stream pipeline by Oct. 15 -- a 500 mile gas pipeline from the Mediterranean to Sicily. Before the revolution ENI had produced 280,000 bopd in Libya. It will benefit greatly when its Libyan resources are eventually restored to full capacity. Royal Dutch Shell will benefit as its resources are restored too. In fact Royal Dutch Shell may be able to exit a business it considers a low margin worry. Oil Libya has made a $2B takeover bid for Royal Dutch Shell’s (RDS-A) African downstream assets. BP had signed a $900 million exploration and production agreement with Libya’s National Oil Company (NYSE:NOC) in 2007. BP’s only big interest in Libya was this agreement. It had not started drilling prior to the revolution, so its infrastructure has not been destroyed. It should only benefit by likely being able to pursue this huge 21,000 square mile agreement for onshore and offshore development. All these factors should add up to a big boost for these European based “big oil” companies. The full restoration may take 1 year or more, as repairs are needed; but the definite start of the process should be a big plus for the companies' forward estimates -- stock prices.

If the EU rebound and the reacquisition of Libyan assets was not bullish enough, these stocks are all paying great dividends after they have been beaten down. This is a great time to buy them. The dividends as of the close on Thursday are in the table below:

Stock

TOT

E

RDS-A

BP

CVX

Price 11/15

$45.57

$38.36

$66.86

$39.52

$99.26

1 yr. Target Price

$63.60

$54.05

N/A

$52.12

$120.84

Forecast %Gain

40%

41%

N/A

32%

22%

Annual Dividend

$3.23 (7.19%)

$2.89 (7.53%)

$3.36 (5.06%)

$1.68 (4.25%)

$3.12 (3.14%)

PE

6.38

8.26

7.34

6.27

8.61

FPE

5.97

6.81

N/A

5.73

7.40

Avg. Analysts’ Opinion

2.2

1.8

N/A

2.0

1.8

EPS % Growth Estimate for 2011

23.50%

2.80%

N/A

2.60%

44.50%

EPS % Growth Estimate for 2012

0.30%

7.50%

N/A

2.20%

-1.70%

5 yr. EPS Growth Estimate per annum

3.00%

8.05%

N/A

3.85%

4.50%

Market Cap

$101.45B

$68.47B

$205.42B

$124.47B

$197.65B

Enterprise Value

$124.73B

$104.74B

$231.70B

$151.48B

$192.37B

Beta

0.96

0.92

0.93

1.13

0.73

Total Cash per share (mrq)

$10.09

$1.47

$6.24

$6.39

$8.97

Price/Book

1.20

0.98

1.28

1.16

1.72

Price/Cash Flow

4.18

3.34

4.79

3.89

5.47

Short Interest as a % of Float

0.24%

0.10%

0.15%

0.30%

1.54%

Total Debt/Total Capital (mrq)

34.42%

33.13%

20.26%

30.19%

9.00%

Quick Ratio (mrq)

0.92

0.84

0.87

0.94

1.33

Interest Coverage (mrq)

--

--

--

88.30

--

Return on Equity (ttm)

18.85%

11.64%

18.28%

20.82%

21.38%

EPS Growth (mrq)

-12.60%

-31.25%

94.53%

132.19%

42.73%

EPS Growth (ttm)

18.31%

6.93%

82.32%

1,342.65%

36.12%

Revenue Growth (mrq)

11.39%

7.77%

33.89%

36.87%

30.08%

Revenue Growth (ttm)

18.10%

16.79%

27.02%

20.23%

18.60%

Gross Profit Margin (ttm)

32.59%

28.37%

22.27%

13.78%

32.03%

Operating Profit Margin (ttm)

14.69%

15.60%

11.35%

8.92%

17.15%

Net Profit Margin (ttm)

7.72%

7.11%

6.65%

5.82%

9.92%

All of the above stocks look like good investments. I included CVX mostly as a comparison, but it is a good buy too. This article is about the opportunity the big European oil companies represent. All have good development pipelines. All have great dividends currently. All have good growth potential over the next one to five years. All stand to benefit in the next year from the resolution of the Libyan conflict. Yes, they could go down on further EU credit crisis problems, but energy is trending up long term and worldwide. They will move back up if they go down. Plus they will pay great dividends while you wait for them to go up. These companies are better than bonds at this point. They could all yield 20%-50% returns in the next year. It is possible you might have to stretch that year to a year and one half, but you will still get the dividends.

I won’t present the technical charts because they are generally weak. However, the fundamentals are good enough in this case to override any chart weaknesses. These stocks are buys.

Good Luck Trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TOT, E, RDS.A, BP, CVX over the next 72 hours.