TotalEnergies Earnings: Lower Commodity Prices Weigh on Results, but Power Segment Building Momentum

No-moat TotalEnergies’ TTE second-quarter adjusted net income results fell to $5.0 billion from $9.8 billion in second-quarter 2022 due to lower oil and gas prices and weaker refining margins. Excluding Novatek volumes, production increased 2% from the year before to 2,471 mboed. Our fair value estimate is unchanged.

It repurchased $2 billion of shares in the second quarter and plans to buy back another $2 billion of shares in third-quarter 2023 as it reaffirmed its prior guidance of a 40% payout ratio for the year.

Of note was the continued strong Integrated Power operating earnings, which through the first half of the year increased to EUR 820 million from EUR 258 million the year prior, while delivering a trailing ROACE of 10.1%. TotalEnergies’ gross renewable power generation capacity, including under-construction and under-development capacity, increased to 74.7 gigawatts from 50.7 GW last year. Earlier in the week, Total announced it would acquire the remaining 70% of renewable energy developer and producer Total Eren it did not own for EUR 1.5 billion, which would increase Integrated Power operating income by EUR 160 million in 2024.

Unlike peer Shell, which recently announced plans to slow investment in renewable energy development and production, Total continues to lean in as part of its multi-energy strategy. Although the economics of renewable power can be challenging, Total has demonstrated capability in the sector while it is not sacrificing hydrocarbon growth to do so, a critical point. That said, the market continues to favor greater relative investment in hydrocarbons as demonstrated by Shell shares’ relative performance following its strategic shift. However, if Total continues to execute, the market should come around. Furthermore, Total shares trade at a greater discount to our fair value estimate compared with Shell’s, which appear fully valued.