Top Analyst Says Buy Total Ahead Of This Key Meeting

• Total SA (ADR) TOT shares have lost 12 percent year-to-date, and have traded below the $55 mark since early February.
• Societe Generale’s Irene Himona upgraded the rating for the company from Hold to Buy, while reducing the price target from €48 to €46.
• Himona believes Total’s shares have upside potential due to the company’s high growth, low costs, resilience and undemanding valuation.

Total is scheduled to host its mid-year strategy update meeting on September 23. Analyst Irene Himona expects the company to “provide reassurance” on dividends, since it has the lowest payout ratio among peers.

The price estimate for long-term Brent has been reduced from $80/bbl to $75/bbl. The price estimates for 2016 and 2017 have been reduced from $65/bbl to $55/bbl and from $80/bbl to $65/bbl, respectively. The price target has been reduced to reflect the lower oil price assumptions.

Himona believes that the company’s stock is undervalued in view of the following “obvious advantages”:

1. Expectation of the fastest production growth of 6.6-7 percent in 2015- 2017, with no real growth likely at Shell or BP.
2. The highest return on average capital employed, of 7.6 percent estimated for 2016, versus about 5.5 percent from BP and Shell.
3. The youngest and therefore the least mature upstream portfolio, with a reserve life of 13.6 years vs 12.6 years for global InterOil Corporations. Total also has approximately 25 major project start-ups to 2017, therefore requiring lower capex.
4. Upstream production costs of merely $9.9/boe in 2014 which are reducing this year to almost as low as Exxon’s.
5. “We look for a 2017 production target of c.2.7mboed (from Total’s current 2.8mboed); and we project organic free cash flow at $65/bbl Brent of c.$6bn (2017e) assuming $20bn of capex (vs $23bn in 2015). At $50/bbl, we expect c.$3bn of organic FCF, pre disposals,” Himona added.

The EPS estimate for 2015 has been raised from $4.09 to $4.32, while the EPS estimates for 2016 and 2017 have been reduced from $4.52 to $3.84 and from $6.10 to $4.94, respectively.