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Equity Valuation Report - TOTAL, GALP
Equity Valuation Report - TOTAL, GALP
Equity Valuation Report - TOTAL, GALP
Oil price has taken a couple of odd turns throughout the last
years. Since the early 2000s the oil price had been rising from
about $20/bbl topping to $140/bbl by 2008. This was followed
by a massive plunge to $42/bbl in early 2009, only to settle
again close to $100/bbl for the next couple of years. In fact,
crude price has been bouncing around $100/bbl since 2010
owing to soaring oil consumption in high-growth countries like
China and conflicts in key oil nations like Iraq (containing
output growth). Oil production in conventional fields couldn't
keep up with demand, so prices spiked.
Then in 2014, between June and December crude oil price fell
by 44% (or $49) due to a slowdown in global economic activity
caused by weakening economies (such as China) and new
efficiency measures; the remaining part originated from
supply and demand shocks in the oil market. A major factor in
the supply growth was the surge of shale-oil producers in the
US, encouraged by the prevailing high price. By exploiting
fracking technology, shale oil companies were an important
player in raising U.S. oil production, from 5M bbl/day in 2010,
to over 9M bbl/day at the time being.
However, up until June 2014 this US oil boom had had
surprisingly little effect on global price. This was due to
geopolitical conflicts flaring
up in key oil regions, such as
the civil war in Libya as well as
the ISIS threats to Iraq and
the international sanctions on
Iran. Those conflicts took
more than 3M bbl/day off the
market.
In response to this oversupply
and
downward
pressure on oil prices, there
was some expectation that
OPEC would reduce its supply to bring up the prices, since
many of its members depend on the oil price to meet the
break-even point on their budgets and pay for all the
government spending theyd rack up.
Oil Supply
According to OECD/IEA, the world oil supply in the last quarter
of 2015 was 97.23 mb/d, 1.8 mb/d higher than in 2014. The US
toppled Saudi Arabia as the worlds larger oil supplier in 2014,
with Russia grasping a close third place. OPEC members
represent about 40% of the total world oil production. NonOPEC oil supply growth for 2015 was 1.46 mb/d making them
the main responsible for the oil glut on the market. There is a
slowdown on investment across the industry due to lower oil
prices and therefore reducing prospects for future oil
production.
damaged by the low prices, but it was all in vain. The real cut
on production came from non OPEC countries. OPEC has an
interest in preserving market quotas while other countries are
being unable to sustain production bellow the breakeven
point.
The US Energy Information Administration reported that daily
production in the US has gone from a maximum of 9.06 mb/d
in June 2015 to 8.95 mb/d in April 2016, as light tight oil
producers drilled fewer wells in response to lower prices.
However, ongoing technical improvements are scaling back
the costs of extraction to $50 or even lower.
Supporting 40% of the total oil supply, they can impact the
prices but they would have to lose market share to other
countries that wouldnt cut production. This cut would
obviously be more advantageous for those who would
maintain their production, which would take advantage of a
price surge and a higher market quota. Even some OPEC
countries like Iran, dont want to cut their production and that
makes Saudi Arabia second guess their strategy. The members
of OPEC have also a past of not following the targets
Supply Forecast
With OPEC countries, Russia and the US freezing production,
for different reasons, and Iran alone increasing production, its
expected a quasi-stagnation of oil production growth
throughout 2016. With the oil glut dissipating, the price will
increase and as incentive to collude decreases, OPEC countries
will start to free their productions and fight over market share.
Shale oil production in the US will jumpstart again as soon as
oil price passes the breakeven point of $50.
Oil Demand
Economic growth and industrial production tend to increase
the demand for oil. Many manufacturing processes consume
oil as fuel or use it as feedstock, and in some non-OECD
countries, oil remains an important fuel for power generation.
Considering these uses, oil prices tends to rise when economic
activity is growing since this implies a higher oil demand.
Obviously, oil prices themselves also affect oil demand.
Other important factors that affect demand include
transportation (both commercial and personal), population
growth, and seasonal changes. Oil use increases during travel
season and in the winter, when more heating fuel is
consumed.
There is a strong relationship between GDP growth rates of
non-OECD countries and oil. Since 2001, oil consumption in
non-OECD countries declined only in the fourth quarter of
2008 and in the first quarter of 2009. Many non-OECD
countries are also experiencing rapid growth in population,
which is an additional factor supporting strong oil
consumption growth.
China, India and Saudi Arabia had the largest growth in oil
consumption among the countries in the non-OECD during this
period. China has already surpassed America as the largest oil
importer and, together with other non-OECD nations,
continues to play a crucial role in dictating the demand for
crude.
Demand Forecast
Global oil demand growth is expected to recover in the years
to 2020 from exceptionally weak gains in 2014, but to lag the
stronger rates experienced prior to the financial crisis of 200809.
An oil market selloff since June 2014, resulting in dramatically
lower spot crude and product prices and lower future prices, is
expected to have a mixed impact on economic growth, but
overall to provide only a modest net boost to global oil
demand. Generally speaking, lower oil prices are a negative for
oil-exporting countries, undermining export and fiscal
revenues, with knock-on effects on government spending and
non-oil economic growth, and a positive in oil-importing
economies, lifting disposable income and cutting input costs,
while at the same time lowering oil-import and subsidy bills.
Date: 31/05/2016
Ticker: EPA: FP
Business Description
Share Price ()
Yahoo Finance
Total S.A is a French multinational company focused on oil and gas undertaking activities
in more than 50 countries. It is one of the six "Supermajor" oil companies in the world
and it covers the whole oil and gas chain. Other than the exploration and production of
crude oil and natural gas, Total deals with power generation, transportation, refining,
petroleum product marketing, and international crude oil and product trading, and is
also considered a large-scale chemicals manufacturer. TOTAL S.A. is a public limited
company listed on the Paris, Brussels, London and New York stock exchanges, and is an
important component of the Euro Stoxx 50 index. It represents the highest market
capitalization on the Paris SE, at 101.4 billion by end-2014.
Key Ratios
Total Revenues
Net Profit
EBITDA Margin
Return on Assets
Return on Equity
Cash Cycle
Debt/Assets
Fin. Leverage
Interest Coverage
PER
EV/EBITDA
NetDebt / EBITDA
2015
143 940
10 698
16%
10%
24%
39
57%
1,35
17,10
10,53
5,74
25%
2016F
155 146
11 665
16%
10%
24%
41
57%
1,32
18,44
10,20
5,68
25%
2017F
195 278
15 356
16%
12%
28%
43
56%
1,29
25,54
8,14
4,66
6%
2018F
193 311
14 908
16%
12%
26%
44
54%
1,19
24,76
8,80
4,99
5%
2019F
195 634
14 898
16%
11%
24%
46
53%
1,12
24,05
9,24
5,21
0%
2020F
200 315
16 014
16%
11%
23%
48
50%
1,02
24,12
9,02
5,19
-24%
TOTAL SA faced in 2014 and 2015 a period of adjustment to a market of low oil prices.
TOTAL SA s EBITDA grew from 2010 to 2013 at a CAGR of 9.5%, but with the oil prices
drop, the EBITDA shrank 7% in 2014 and 32% in 2015. TOTAL respond cutting production
in 2014 and scale back investment and beginning to sell some assets. With the oil prices
increasing, TOTAL wants to increase production and start to spend more in CAPEX.
TOTAL wants to diversify more its production, starting to invest more in production of
Natural Gas to be less expose to oil prices. EBITDA margin looks stable, being always
around 16% since 2010 and its expected that, with a steady increase of production and
planned and a return of oil prices to values above 55$ per barrel, TOTAL will increase its
cash flows enough to start reduce its debt.
FFC Analysis
Sensitivity Analysis
FFC Analysis
Production
P&L
EBITDA
BS
Net Debt
Assumptions
FCFF
Date: 06/06/2016
Ticker: GALP.LS
Business Description
Galp Energia is a Portuguese multinational energy company, which finds and
extracts oil and natural gas from the four continents to deliver energy to millions
of customers every day. Galp Energia has activities that are expanding strongly
worldwide, mainly in Portugal, Spain, Brazil, Angola, Mozambique, Cape Verde,
Guinea-Bissau, Swaziland, Gambia, East Timor, Uruguay, Equatorial Guinea,
Namibia and Malawi.
Yahoo Finance
Sensitivity Analysis
Galp Energias strategy was designed to take advantage of the current and
future of the Oil & Gas industry dynamics, namely the expected increase in oil
and natural gas demand worldwide, and to shift the strategic focus away from
markets with higher economic slowdown, as is the case in Europe, particularly in
the Iberian Peninsula.
Galp Energia pursues a strict financial discipline policy, in order to maintain a
solid capital structure.
In view of ensuring sustainable value creation in the long term, the Company is
committed to the implementation of responsible policies, namely addressing the
principles of ethics and of respect for human rights, and is focused on the
pursuit of adequate safety practices.
Investment made in its human capital, through the development of the skills of
its employees are also fundamental to the execution of the Company's strategy.
Production at 2020
BS
2020
6%
1%
39%
54%
P&L
Source: Team Estimates
FCFF
Source: Team Estimates
The Team
Director
Pedro Reis
pdreis1988@gmail.com
Analysts
Catarina Lindo
Cludia Fernandes
Cludia Castro
Eduardo Magalhes
Gil Flores
Joo Santos
Joo Martins
Pedro Silva
catarina.lindo@hotmail.com
leticia.gomez22@hotmail.com
claudiasofiaa96@hotmail.com
eduardopmagalhaes97@gmail.com
gilquadrosflores@gmail.com
joniguitarra@gmail.com
joaopedro56@gmail.com
pedroasilvawork@gmail.com
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