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A Total(ly) Cheap Stock?

May 21, 2012 | About:

crafool

6 followers
Wow, our financial media (i.e. CNBC, Jim Cramer and Melissa Lee) after creating, developing and nuturing a nice "panic" around Total S.A.'s North Sea Elgin platform's gas leak does not feel compelled to follow up with their audience and investors. To the best of my knowledge, I have not seen one word in print or heard one word about today's news from Total S.A. The following is the link to the story that I am referring:

http://www.foxbusiness.com/news/2012/05/21/total-confirms-end-to-north-sea-gas-leak/

It appears European oil major, Total S.A. has stopped the gas leak. In my opinion, this is news. CNBC is not reporting it. I don't understand for they definitely created imagines in the minds of the audience and viewers of another BP situation as far as environmental damage and financial damage. Jim Cramer and Melissa Lee said to avoid the company for losses could be $10s of billions of dollars. The stock was around $54 a share a the time CNBC started reporting and creating story inducing "panic". The stock has cratered under these negative and uninformed calls of catastrophic environmental and financial risks. The stock as of today was trading around $44 a share. This decline of around $10 a share with over 2.25 billion ADR shares equates to wiping out around $22.5 BILLION dollars of market value!!! Of course, no positive reports on Total S.A from CNBC.

So in my opinion what appears as CNBC's inaccurate, reckless and theatrical reporting on Total SA has knocked over $22.5 BILLION off the market value as a result, I guess what I want to see is if an unintended possible consequence of CNBC is that Total SA is now a cheap stock?

As I said Total S.A.'s ADRs were trading around $44 per share today. A look at the March, 2012 Valueline on Total shows that the company has current assets of around $82.76 Billion and current liabilities of around $60.71 Billlion. The company has total long term debt of around $29.32 Billion. This leaves me after netting out these amounts with assigning about $7.27 Billion of debt to the company and based on over 2.25 billion ADR shares that is about $3.23 of debt per share. Thus, I think the enterprise value of Total SA is around $47 per share when I add the current market price and debt per share together.

Is a $47 Enterprise Value ("EV") a good or cheap price for Total? In my opinion, I have to know what I get for that $47 per share total investment and I look to Valueline to get an average of past EPS data as well as some future estimates. When I look at the estimates for 2012 and 2013 and then add in the past EPS data for 2011, 2010 and 2011, I get an average historical/estimated EPS of around $6.59. This looks like a fair return for every share that I buy for $47 E.V. that I earn $6.59. This expressed as a percentage return on investment is 14% after tax if the estimate is correct. I believe that 14% after tax versus the 10-year U.S. Treasury Yield of around 1.74% (As of 5/21/12) means Total is probably offering a compelling return for my risk. If I use the low actual EPS earned by Total in 2009, I see the company earned $5.31 per share and again is offering a return on enterprise value/investment of around 11%. Again, in my opinion this is compelling.

The company is based in Europe, specifically France, however it has operations in over 100 countries worldwide. It sells a product with worldwide demand. Valueline rates its financial strength at A++. If inflation rises, it's primary product should rise in value, and it pays out around 50% of its earnings in dividends. The estimated dividend for 2013 according to Valueline is $3.25 per share for a dividend yield of around 7.38% based on the $44 share price. Is anyone else looking for income that might be more than the rate of inflation, and has the possiblity to rise should inflation rise or violence occurs in the middle east?

Obviously, there is no perfect company (Facebook? Ouch!!) and this company has risks including oil and natural gas prices falling dramatically and making estimates of EPS worthless. That said I believe it offers a compelling risk and reward scenario, and I think it is really only occuring from some media outlets that one great market veteran called "Financial Pornography".

Happy investing to all and please don't take my opinion but research and form your own. I hope this gives you enough information to spend the time and effort to research Total to see if it fits your personal situation.


Rating: 3.9/5 (25 votes)

Comments

cdubey
Cdubey premium member - 2 years ago
A bit of research on the management would have been interesting. It seems that Total has been trying to streamline its portfolio by selling some of the businesses in refining and in general restructuring the downstream business.

A brief look shows the debt of Total has increased every year since 2007. It has gone up from €20b in 2007 to €32b in 2011. The cap-ex similarly is on an upward trend.

I am not saying that Total is not cheap. It seems it is. But a bit more research is necessary to make an educated decision on the investment.

A superficial comparison between Total and BP will show you that BP is more attractive and has gone down a similar amount during the same time. BP has smaller P/E, smaller P/B, smaller P/S, better FCF history, better RoIC and better balance sheet (even after the Gulf disaster). This says a lot about how the company is run.

I might buy Total if it drops below $40. But I find BP more attractive if it drops to $33. We will see which one I end up owning.
crafool
Crafool - 2 years ago


Cdubey,

I would agree from many relative value measures BP is cheaper than Total, S.A. BP has NOT fully resolved all of its environmental, legal and reputational issues. Full disclosure is that I own both BP and Total. I chose to write about Total S.A., because it appears its "black swan event" is now off the table.

As far as the balance sheet of Total, I see the debt has risen since 2007, and its capex, I also see that this increase has taken the company's Book Value per ADR from $29.18 (2007) to an estimated $42.35 (2012). That move in book value equates to around $29.68 billion in increased net worth for an increase of 45% over the last 4 1/2 years.

I like both companies, but BP could surprise. Happy investing to all!!!
Mick
Mick premium member - 2 years ago
I, for one, am very grateful that the folley of CNBC, Jim Cramer and Melissa Lee (and their followers, obviously) helped me complete my purchases of shares in this company on the cheap.

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