ii view: high-yielding Total is alternative to BP and Shell

by Keith Bowman from interactive investor |

Has lower borrowing left this French oil giant better equipped to combat Covid than UK rivals?

First-quarter results

  • Adjusted net income down 35% to $1.78 billion
  • Earnings per share down 36% to $0.66 
  • Quarterly dividend of 66-euro cents per share, unchanged from Q4 2019 

Chief executive Patrick Pouyanné said:

“The group is facing exceptional circumstances: the Covid-19 health crisis, which is affecting the world economy and creating major uncertainties, and the oil market crisis, with the sharp drop in oil prices since March.”

ii round-up:

French oil giant Total (EURONEXT:FP) posted a 35% drop in quarterly profit, but unlike Royal Dutch Shell (LSE:RDSB), kept its dividend payment unchanged from the previous quarter.

Total shares rose by more than 5% in early European trading, although are down by around 34% year-to-date, similar to UK rival BP (LSE:BP.). Shell shares are down by more than 40%. 

Prior to the corona crisis, Total had guided towards a 5% to 6% increase in the dividend payment this year.

Upstream production in the quarter rose by 5%, driven by projects such as its Culzean project in the UK and Yamai in Russia. In April, Total agreed to buy the Ugandan oilfield interests it did not already own from field partner Tullow Oil (LSE:TLW).

Cash flow for the French major fell by 31% to $4.5 billion, hit by the falling oil price and a halving in gas prices year-over-year. 

Further measures to conserve cash include an additional cut in net investments to $14 billion, a cut of 25% compared to the $18 billion targeted in February, along with cost savings of more than $1 billion.

A $5 billion disposal programme is being maintained but refocused on infrastructure and real estate assets. 

Like rivals in addressing climate change concerns, Total announced plans alongside its results to become carbon neutral by 2050.

ii view:

Total is active in more than 130 countries and employs about 100,000 people. Despite a 5% increase in production to more than three million barrels of oil equivalent per day (mboepd) during this latest quarter, full-year 2020 output is expected to fall by at least 5% to between 2.95 and three mboepd. 

In a Covid-19 world, Total is like companies far and wide, looking to conserve cash. It also in April moved to increase its cash liquidity, issuing $3 billion of bonds and drawing down $6 billion in credit lines. 

For UK investors, and with the shares priced in euros, buying into the company direct takes on the additional risk of currency movements, but Total looks to have entered this Covid crisis in better shape than some rivals. A gearing or borrowing figure closer to 20% is better than Royal Dutch Shell’s at nearer 30% or BP’s at around 36%. 

An unchanged dividend payment gives a dividend yield in the region of 8% at the current price, although future payments of this kind are certainly not guaranteed. In all, and for those UK investors seeking an alternative to major FTSE 100 constituents BP and Shell, Total could make a sensible choice. 

Positives: 

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

Negatives:

  • Shares are priced in euros, providing currency risk
  • Fossil fuels are linked with climate change

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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