ii view: Total changes name as part of green drive

Can a smaller decline in share price than UK rivals and a dividend yield of around 7% tempt UK investors?

Fourth-quarter results to 31 December

• Adjusted profit down 59% to $1.3 billion
• Earnings per share down 61% to $0.46
• Final dividend of 66-euro cents, unchanged from previous quarter
• Total dividend for the year of 2.64 euros
• Group gearing down to 25.9% from 26.1%

Chief executive Patrick Pouyanne said:

“2020 represents a pivoting year for the group’s strategy with the announcement of its ambition to get to net zero, together with society. The group affirms its plan to transform itself into a broad energy company to meet the dual challenges of the energy transition: more energy, less emissions.”

ii round-up:

French oil major Total (EURONEXT:FP) today announced a change of name to TotalEnergies in order to reflect its changing portfolio of assets towards renewables and Liquefied Natural Gas (LNG). 

Final quarter 2020 adjusted profit of $1.3 billion marginally beat analyst estimates nearer to $1.2 billion, rising from below a $1 billion in the prior third quarter due to an improving trend in the oil price. 

Total shares rose by more than 1% in European trade, leaving them down around 20% over the last year, although up by more than a third since late October. Shares for rivals BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB) are down by 43% and 33% respectively over the last year. 

Cashflow of $4.5 billion was its highest since the final quarter of 2019, although capital expenditure of $3.4 billion reduced the free cash flow amount to $1.1 billion. 

In early October, Total entered the offshore wind sector in France as it took a 20% stake in a wind farm located in the Mediterranean Sea. This is in addition to its existing wind projects in both the UK and South Korea.

Group gearing or borrowing fell slightly to 25.9% from 26.1%, while the quarterly dividend of 66-euro cents per share remained unchanged from the previous quarter. That makes a total of €2.64 per share for the year, down fractionally on the 2019 total of €2.68 a share. 

Oil and gas production is expected by management to stay broadly the same over 2021. Investment is forecast to come in at approximately $12 billion during the year. of which around a fifth will be directed at renewables and electricity. 

ii view:

Total is active in more than 130 countries and employs approximately 100,000 people. In the autumn of 2020, the French corporate outlined plans to become carbon neutral by 2050. Like BP and Shell, it is now pursuing a strategy to become a broader greener energy company. Over the next 10 years it hopes to expand both LNG and renewables production while reducing oil product output down to 30% of sales from a current 55%. 

For UK investors, and with the shares priced in euros, buying into the company direct takes on the additional risk of currency movements. Despite past management assurance, concerns regarding a possible cut or rebasing of the dividend cannot be ignored. A historical and forecast dividend yield of around 7% compares with US rival Chevron's (NYSE:CVX) at around 5.5% and Shell’s at under 4%. 

But Total looks to have entered this Covid crisis in better shape than many. Lower gearing or borrowing than BP or Shell potentially gives it more financial flexibility. Current gearing at 25.9% compares to BP’s at 36% and Shell’s at 32.2%. In 2021, the French major has announced more than 10 gigawatts (GW) of additional renewable projects. In all, Total looks to remain a feasible choice for those UK investors looking to diversify overseas.

Positives: 

• Attractive dividend payment (not guaranteed)
• Lower gearing than UK rivals Shell and BP

Negatives:

• Uncertain Covid-19 outlook
• Competition in renewable energy is increasing

The average rating of stock market analysts:

Buy