4. TotalEnergies SE (NYSE:TTE)
Trailing 12 months Net Income: $20.53 billion
TotalEnergies SE (NYSE:TTE) is a Courbevoie, France-based integrated energy company with a headcount of 105,000 employees and a presence in over 130 countries.
The company is working on achieving its target of installed capacity of 35 GW by 2025 and target 100 GW installed capacity through renewable energy sources by the end of this decade. TotalEnergies SE (NYSE:TTE) plans to become one of the top five players in the renewable energy market in the future. Furthermore, the company intends to achieve carbon neutrality by 2050. During the 2017 to 2021 period, TotalEnergies SE (NYSE:TTE) increased its installed capacity of renewable energy from 800 MW to 10 GW. The company is also working on developing electricity storage capacity as well.
Artisan Partners shared its outlook on TotalEnergies SE (NYSE:TTE) in its Q3 2022 investor letter. Here’s what the firm said:
“We added one new position this quarter, TotalEnergies SE (NYSE:TTE). TTE is one of the world’s largest energy companies. It develops and produces oil and gas, produces and sells refined products, is one of the largest producers and traders of LNG, and owns a large portfolio of renewable power generating assets. TTE has one of the lowest cost portfolios of oil and gas assets and therefore one of the lowest breakeven points in the industry. It also has one of the best balance sheets in the industry. We estimate it will reach a net cash position sometime in 2023.
The valuation of TTE—and that of Shell—is fascinating. TTE sells at approximately 4X earnings and has a 5% dividend yield. With its current buyback program and a recently announced special dividend, the owners yield is more than 10%. The valuation and owners yield are not dissimilar to those of Shell, which we also own and which trades at just under 5X earnings. To say that a discount is attached to European oil companies relative to US peers is an understatement. Exxon Mobil sells at 8X earnings, Chevron 9X and Conoco 8X. If TTE and Shell redomiciled to the US, their share prices would probably double.
We have a few theories for the valuation anomaly. First, as mentioned above, Europe generally trades at a big discount to the US. In the case of TTE and Shell, this makes no economic sense. The oil and gas business is a global one, and TTE and Shell have attractive assets. The main explanation, we believe, is that large sections of the European asset management industry will not invest in oil and gas because of ESG restrictions. Yet if the recent war in Ukraine and the current energy crisis have shown us nothing else, the supply of energy is an enormous social good. Indeed, it is an existential good. Moreover, it is companies such as TTE that will invest billions to supply the LNG that Europe desperately needs to restore its economy and reduce the crushing cost burden on families who must now choose between heating their homes and eating. Finally, TTE is also investing billions per year in renewable power generating assets such as wind and solar. Such assets will likely never replace clean burning natural gas and nuclear as base power suppliers, but they are a valuable and clean adjunct to modern grids. We believe TTE’s renewable portfolio is worth between $25 billion and $35 billion and is moving from almost no profit contribution toward meaningful levels of profit over the next few years. We wonder how it makes sense for investors to disinvest from these kinds of assets on ethical grounds.”
