lundi 18 février 2013

Total (FP) 2012 update

I 1st coved Total in August 2011 : see here.
The company has just published its 2012 results.
The company was (and is) extremely cheap on a PER or EV/EBIT basis and raised its dividend.

However my main concern at that time was that Total was, as stated by Jim Chanos for integrated oil companies, in "stealth liquidation".
To summarize Jim Chanos: "we are shorting oil majors. If you look at their accounts you will see that capital expenditure (CAPEX) consumes all the cash generated, yet their reserves and their sales have stagnated. This means that they borrow to pay their dividend. They are in fact in liquidation.
This did not stop me from investing at 32€, mainly for the hefty dividend yield (7%).
The stock is now around 37 €.

So is Total in "stealth liquidation" ?
Here is a graph with
- Operating cash flow (flux d'activité in French)
- CAPEX (more on that later)
- FCF = operating cash flow - CAPEX
- FCF - dividend
This last one turned negative in 2009 and stayed there.
Score one for Chanos.

Lets now look at :
- long term debt (left scale)
- production and reserves (right scale)
Debt climbs, flat production, flat reserves.
Shows also that all CAPEX can be considered as maintenance CAPEX (0 growth).

Score another one for Chanos.

Same graph but debt expressed as a % of equity (left scale).
Well debt does not seem to explode.

Summary :
The "liquidation" term seems rather excessive to me.
But a dividend durably exceeding FCF is imho unhealthy.
Standby for me, I don't know quite what to do !