TotalEnergies: A Reorganized Company For A Reorganized Environment
- TotalEnergies is a reorganized company for a reorganized environment as it's focused on rebuilding a distributed energy portfolio.
- The company had an incredibly strong quarter with strong earnings. It's continued to invest heavily in its business while paying out high single-digit dividends.
- Going forward, we expect TotalEnergies to generate strong double-digit returns from its shareholder rewards along with its continued investments in growth.
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TotalEnergies SE (NYSE:TTE) (OTCPK:TTFNF) is one of the largest integrated oil companies with a market capitalization of almost $120 billion. The company has a current market capitalization of more than 5%, and is at the forefront in preparing its business for a transitioning energy environment.
We expect TotalEnergies SE to be one of the better performers in the markets as it focuses on what we feel is obvious, companies will always chase the lowest cost energy.
TotalEnergies plans to completely reorganize their business and focus on new markets with significant potential.
TotalEnergies Transformation - TotalEnergies Investor Presentation
TotalEnergies is focused on growing its LNG business, where it is already the #2 player, and develop renewable gases here that can be used for LNG. The company plans to promote natural gas for power and mobility, significantly decreasing emissions versus alternative fuels like coal currently in use. That'll help decrease emissions globally.
Additionally, the company's increased focused on liquids, carbon sinks, renewables, and electricity will all help increase the reliability of its cash flow and drive shareholder rewards.
TotalEnergies Profitable Growth - TotalEnergies Investor Presentation
TotalEnergies is focused on driving profitable growth. Production has grown from just over 3 million barrels/day in 2019 to almost 4 million barrels/day in 2030. The growth in the company's oil business will be minimal but the growth in electricity and gas businesses are expected to be much more significant.
TotalEnergies Growing Markets
TotalEnergies is also participating in rapidly growing markets, where it'll increasingly improve its performance.
Market Growth - TotalEnergies Investor Presentation
From 2019 to 2020, as the GDP dropped due to COVID, and oil and energy demand dropped drastically, two of TotalEnergies' largest businesses - LNG and electricity - both grew rapidly. These businesses saw 3% and 13% growth, respectively, and can be expected to continue growing rapidly going forward. That'll help the company's position.
TotalEnergies 2Q 2021 Financial Performance
Supporting TotalEnergies' drive to generate strong shareholder returns is the company's strong 2Q 2021 performance.
TotalEnergies results - TotalEnergies Investor Presentation
TotalEnergies benefited from strong oil prices to generate strong shareholder returns. Oil prices for 2Q 2021 averaged $69/barrel, a 2.3x increase, with 1Q prices seeing 62% growth. That represented dramatic growth for the company with $3.5 billion in earnings and $6.8 billion in DACF. For an almost $120 billion company, these were strong results.
For perspective, the company is trading at a single digit P/E with its earnings potential. That's after spending roughly 10% of its market capitalization on continued growth for its new businesses.
TotalEnergies Shareholder Returns
TotalEnergies has the ability to drive significant shareholder returns from its current portfolio of assets.
The first is the company's continued capital investments to the tune of roughly $12 billion annually. The company expects this capital spending to see a midpoint of roughly $14.5 billion from 2022-2025, a significant part of which will be in renewable and electricity contracts. Here, the company, as one of the first major players in the space, stands to benefit significantly.
That's because there's a significant amount of demand for renewable energy right now. The company can generate long-term contracts with strong profit margins. Generating 120 TWh/year in electricity, at a relatively cheap $0.05/kWh billions in annual revenue for the company.
Going forward, we expect this combination of things to lead to strong shareholder rewards for TotalEnergies shareholders. The company's single digit P/E and growth will combine to enable the company to drive strong shareholder rewards.
One example of this is the company's plan to start share buybacks. Based on Brent crude prices of $70/barrel, with the company's planned share repurchases, the company will be able to buy back $2.5 billion in shares a year. The company will be able to repurchase 2% of its annual shares, which on top of a 5% dividend, will be high-single digit rewards.
That'll help accelerate direct returns to shareholders.
TotalEnergies' risk is two-fold.
The first is that in the immediate term, the vast majority of the company's ability to succeed involves oil prices. The company has performed incredibly well recently off of oil prices; however, there's no guarantee that they'll continue to perform well. Since oil still makes up a substantial part of the company's business, it's worth paying close attention to.
The second is the company is in the midst of a transition. The company is spending billions on a new business for it. While it has previously managed to get reliable long-term contracts, there's no guarantee that it'll be able to continue doing that. That's something worth paying close attention to for interested investors.
TotalEnergies is a new and improved company with the ability to drive significant long-term rewards for its shareholders. The company has an unparalleled asset portfolio and it's continuing to generate incredibly strong cash flow from its oil assets. At the same time, it's moving into a variety of other businesses.
Going forward, I expect TotalEnergies to continue to buy back shares and generate a respectable dividend. All of this put together makes TotalEnergies a valuable long-term investment with strong and continued growth for shareholders.
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