RBC Capital maintained its Sector Perform rating and €80.00 price target on TotalEnergies (EPA:TTEF) SE (TTE:FP) (NYSE: TTE). The company, during its annual Capital Markets Day, confirmed its commitment to a cash flow from operations (CFFO) payout ratio of over 40% through various market cycles. TotalEnergies also announced its intention to continue with an $8 billion share buyback program in 2024, which is expected to result in distributions amounting to more than 45% of its 2024 cash flow.
TotalEnergies plans to sustain its current quarterly buyback rate of $2 billion into 2025, contingent on reasonable market conditions. Additionally, the company anticipates increasing its dividend per share (DPS) by at least 5% in the next year, a decision influenced by the projected buybacks for 2024. The repurchase program will include shares related to employee share grant plans, estimated at around $500 million annually.
Questions remain about the specific market conditions TotalEnergies considers reasonable for maintaining its buyback pace, with expectations leaning towards a Brent crude oil price range of $60 to $70 per barrel. The company has also reiterated its net investment guidance of $16 to $18 billion for the period from 2025 to 2030, with about $5 billion allocated annually to low carbon activities. TotalEnergies has the flexibility to reduce net investments by $2 billion if there is a significant drop in prices. Organic capital expenditure is expected to average around $18 billion per annum from 2024 to 2026, decreasing thereafter.
Growth for TotalEnergies is anticipated to be driven by liquefied natural gas (LNG) and electricity generation, with oil and gas production growth averaging around 3% per annum through to 2030. This is slightly higher than the previously guided 2-3% per annum over five years. In the immediate future, production growth is expected to surpass 3% in 2025 and 2026 due to various project start-ups.
The company has mitigated its exposure to spot gas prices in the LNG market by securing long-term LNG sales contracts predominantly indexed to Brent crude prices and by expanding its upstream gas production in the United States through cost-effective acquisitions. This strategic move towards a more balanced position in relation to U.S. gas has been noted by RBC Capital as a significant development.
TotalEnergies and APA Corp have committed to a $10 billion investment in Suriname's Block 58, marking the onset of offshore production for the nation. In parallel, TD Cowen has maintained a Hold rating on TotalEnergies, anticipating a growth in its cash flow from operations by $8 billion from 2024 to 2030. HSBC also updated its outlook on TotalEnergies, raising the price target to EUR70.40 from EUR69.20, maintaining a Buy rating due to the company's strong distribution yield and clear visibility on growth prospects.
In collaboration with Shell (LON:SHEL) and Equinor, TotalEnergies has completed a joint carbon dioxide storage project in Norway, with first deliveries expected in 2025. This significant development in carbon capture and storage technology is part of the Longship project.
TotalEnergies also reported robust Q2 earnings with an adjusted net income of $4.7 billion and a significant cash flow of $7.8 billion. The company has launched major upstream projects, sanctioned LNG developments, and acquired flexible assets to enhance its renewable ventures. As part of its balanced transition strategy, TotalEnergies has authorized up to $2 billion for share buybacks in Q3.
InvestingPro Insights
TotalEnergies SE's recent Capital Markets Day announcements align well with several key metrics and insights from InvestingPro. The company's commitment to a strong payout ratio and continued share buybacks is reflected in InvestingPro's data, which shows a dividend yield of 3.93% and a dividend growth of 8.79% over the last twelve months. This is further supported by an InvestingPro Tip highlighting that TotalEnergies has maintained dividend payments for 48 consecutive years, underscoring its commitment to shareholder returns.
The company's financial health appears robust, with InvestingPro data indicating a P/E ratio of 7.38 and a market capitalization of $152.14 billion. An InvestingPro Tip notes that TotalEnergies is trading at a low P/E ratio relative to its near-term earnings growth, which could be attractive for value investors. Additionally, the company's revenue for the last twelve months stands at $210.24 billion, with a gross profit margin of 34.97%, demonstrating its strong market position.
TotalEnergies' focus on LNG and electricity generation for growth is supported by its status as a prominent player in the Oil, Gas & Consumable Fuels industry, as noted in another InvestingPro Tip. The company's strategy to balance its exposure to U.S. gas prices aligns with its operational flexibility and moderate debt levels, also highlighted by InvestingPro.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 7 more tips available for TotalEnergies on the platform.
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