ii view: Total defies falling oil price

With a 6% dividend increase, should investors consider Total rather than BP or Shell?

Fourth-quarter results

• Adjusted net income flat at $3.2 billion
• Earnings per share up 1% to $1.19 
• Production of 3,014 kboe/d (thousand barrels of oil equivalent per day) in 2019, up 9% on 2018
• Fourth-quarter dividend up 6% to 68 euro cents

Guidance:

• Production growth in 2020 at more than 2%

Chief executive Patrick Pouyanné said:

“The group reported solid fourth quarter 2019 results with [debt adjusted] cash flow (DACF) of $7.4 billion, an increase of more than 20% compared to the fourth quarter 2018, and adjusted net income stable at $3.2 billion, despite a lower price environment.”

ii round-up:

French energy giant Total (EURONEXT:FP), posted stable and forecast beating profit in these fourth quarter and full-year results.

Adjusted profit of $3.2 billion was flat compared to the last quarter of 2018, exceeding the consensus estimate at $2.7 billion and defying an 8% drop in Brent crude and 42% fall in gas prices year-over-year.

The shares gain by more than 2% in early European trading, adding to a 6% gain for the shares over 2019 and contrasting with near 5% falls for rivals BP (LSE:BP.) and Royal Dutch Shell (LSE:RDSB) during 2019.

A revaluation of futures contracts helped its marketing & services division report a 42% profit increase, offsetting a decline at its downstream refining & chemicals business as French strikes hindered output volumes. 

• Diversify risk with this well-run oil major

Production for 2019 increase by 9% compared to 2018, aiding a 12% profit increase for its exploration & production division year-over-year, although a production estimate for 2020 of growth at more than 2% proved shy of expectations at around 6%. 

Healthy fourth-quarter cashflow assisted a 6% increase in the dividend payment, with Total planning share buybacks worth $2 billion in 2020, a marginal increase from the $1.75 billion executed during 2019. 

ii view:

Total is a global energy giant. It is active in more than 130 countries and employs around 100,000 people. Along with oil and gas, its operations also cover solar energy, biomass and speciality chemicals. Following its previous acquisition of Engie’s Liquefied Natural Gas (LNG) assets, Total is the second largest publicly traded player in the LNG business.

For UK investors, and with the shares priced in euros, buying into the company direct takes on the additional risk of currency movements. The historic dividend yield at just under 6% (not guaranteed) is also lower than rivals BP and Shell, although forecast dividend cover at around 1.5 times is higher, while gearing at 20.7% is lower than both its UK rivals at around 30%. 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: 

• Shareholder returns remain a focus
• Diversity of business type and geographical location

Negatives:

• French strikes have reduced output
• Fossil fuels are linked with climate change

The average rating of stock market analysts:

Buy