Interactive Investor

ii view: TotalEnergies profit falls but dividend grows

Pursuing an energy transition strategy and with a focus on shareholder returns. We assess prospects.

26th October 2023 16:05

by Keith Bowman from interactive investor

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Third-quarter results to 30 September

  • Adjusted profit down 33% to $6.8 billion (£5.6 billion)
  • Dividend up 7.25% from Q3 2022 to 74 euro cents per share (64p)

Chief executive Patrick Pouyanné said:

“While implementing its balanced transition strategy that combines oil & gas with integrated energy, TotalEnergies demonstrates once again this quarter its ability to leverage a supportive price environment.”

ii round-up:

French oil giant TotalEnergies SE (EURONEXT:TTE) today detailed profits broadly matching City forecasts, with the retreat in earnings set against a tough comparative which had been buoyed by the Ukraine war in the autumn of last year. 

Third-quarter profit to the end of September fell by a third to $6.8 billion, although the CAC 40 listed company announced a 7.25% increase in its dividend payment year-over-year to 74 euro cents per share (64p).

Shares in the oil major proved little changed in afternoon European trading having come into this latest news up around 5% year-to-date. That’s similar to the increase in West Texas Intermediate crude oil so far this year, but below the 10%-plus gains for rivals BP (LSE:BP.) and Shell (LSE:SHEL).

Total's oil and gas production rose 5% year-over-year to 2.5 million barrels of oil equivalent per day, helped by new production in Brazil, Nigeria, and Iraq. 

Like rivals, Total continues to pursue an energy transition strategy under global climate change demands. Profit at its Integrated energy business more than doubled from the year ago quarter to €500 million, with new wind production commencing off Scotland and in the US with new solar production.   

Group net debt rose to a gearing level of 12.3% from the previous quarter’s 11.1%, but is soon expected to fall below 8% given pending $4.1 billion proceeds from a Canadian asset sale. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. 

ii view:

TotalEnergies is a global multi-energy company and is one of France’s biggest companies by stock market value. Active in more than 130 countries, it employs over 100,000 people, with its core areas of production in West Africa, the Middle East, and the North Sea. It operates through the divisional areas of Exploration & Production, Integrated Gas, Integrated or renewable Energy, Refining & Chemicals, and Marketing & Services.  

For investors, increased borrowing costs and ongoing global economic uncertainty continue to cast a shadow over future energy demand. Geopolitical factors including conflict in the Middle East cannot be ignored and costs generally for businesses are now elevated. Tackling climate change remains a required need for both the industry and governments alike, while the pricing of the shares in euros adds the additional risk of currency movements for UK investors. 

 On the upside, the company benefits from both business type and geographical diversity, while strong cashflows allow a combination of investment and shareholder returns. An energy transition strategy to tackle climate change concerns is being pursued, while more than $33 billion in taxes globally was paid during 2022, more than double the figure for 2021, mostly to producing countries. 

Shares have been on an upward trajectory for the past three years and now trade close to record highs. Strong oil prices also underpin prospects. While some caution remains sensible given the volatility of the oil price in recent years, a forecast dividend yield of over 4% should also please income seekers.

Positives: 

  • Geographical diversity of operations
  • $9 billion share buyback programme

Negatives:

  • Uncertain economic outlook
  • High competition in renewable energy 

The average rating of stock market analysts:

Buy

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