Not many people in the markets seem to be interested in oil stocks anymore, relegated to the rank of fossils of the stock market. Total is no exception, and the stock of the French oil group has fallen by 41% since the start of the year.
Even the presentation to investors of its new strategy, which confirmed its shift to renewable electricity production, had no impact on the stock.
Unsurprisingly, Total has announced that it will transform into a “multi-energy” group. Its oil production should stagnate or even decrease slightly by 2030, while its sales in LNG (liquefied natural gas) will double over the period and its gross renewable energy production capacities will be increased to 35 gigawatts in 2025, to which will be added another 10 gigawatts every year until the end of the decade.
To achieve this, the group intends to invest $ 2 billion per year in low-carbon electricity (that is to say in wind and solar fields) by 2025 (against 1.5 billion today) , then 3 billion until 2030. This will represent more than 20% of its total investments at that date.
In the end, the distribution of sales will break down as follows: 30% petroleum products, 5% biofuels, 50% gas, and 15% mainly renewable electrons.
A “long-lasting” return of over 9%
This change is not without raising several questions. Of course, it is likely to appeal to investors looking for stocks committed to carbon neutrality. But its actualization will take time. The crossing of the curves, the moment when green electricity will supplant oil in the group’s income, is not yet possible. On the other hand, will investments in wind and solar farms prove to be as profitable as investments in oil fields?
Even if it has decided to be more discriminating in its choice of projects, Total is not abandoning oil production. This is still its core business, its main source of cash generation. Especially since demand, even if it is currently penalized by the Covid-19 crisis, should remain firm for a few more years. Most of the fleet is still running on gasoline and diesel – the switch to electric cars will take time – while air traffic will recover once the virus is defeated by a vaccine.
Total, unless it proceeds with the acquisition of a “utilities” that would change its status, will remain in the eyes of investors for a period of time an oil value. The stock should therefore continue to evolve according to fluctuations in oil prices, which will pick up again as demand recovers in the course of 2021. With a downside, its valuation levels will be revised downwards. markets anticipating the end of oil.
The stock should also get some weight support with its performance (over 9% at current price). The group has confirmed that it is able to maintain its dividend (2.63 euros per share expected for 2020) at a price of 40 dollars a barrel.
Our advice: Buy Total to aim for 40 euros. Oil prices will gradually recover. Some experts even evoke a future oil counter-shock. Isin code: FR0000120271.
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