Total
Value in reliability
Despite reporting one of the most resilient sets of earnings and sector-leading return on capital performances since the start of the year, Total’s share price has performed broadly in line with the European Oils y-t-d. Realistically we think this reflects the premium rating vs the peer group at the start of the year and the company is delivering on everything it has said it would – capex next year is set to be 40% below the peak, opex is still falling, projects are coming on stream and we believe the group should be able to cover a 100% cash dividend in a $50-55/bl world in 2017. These are all positive factors but the challenge for Total and its investors is in a period when other companies are about to hit their own harvest phase of falling capex and growing production, how, if at all, does the company differentiate itself. That opportunity will come with the upcoming capital markets day in September, which we expect to focus once again on the key messages of strong discipline on capex and opex and the potential for both production growth and free cash flow generation. Reflecting relative share price movements in the sector, a business that is resilient in almost any oil price environment and with over 30% upside potential to our EUR55/sh price target, we lift our rating to Overweight relative to the wider EU oils sector.