Tuesday, 28 July 2015

Earnings catch-up #1: Statoil, BP, Michelin

A lot of numbers out today...here are a few highlights.

Statoil numbers were out early doors European time and captured a couple of sub-themes that attracts me currently to the resource-facing sectors: the scope for self-help and surprise versus low expectations was apparent via the overt capex...

...and opex cuts: 
Intrinsically I am not excited by Statoil as I kind of feel that the large shareholder (the Norwegian government) can sometimes act more in their interests than those of shareholders.  This is not a charge that can be leveled at BP who also put out their Q2 numbers today.  

In December last year I put out a posting highlighting the then sub 400p share price as being a level to add/buy at and that worked out pretty well...until the recent oil price decline and sector-wide derating. 

BP talked about all the same aspects as Statoil even noting that they have 'now agreed $7.4 billion of divestments towards the current $10 billion divestment programme'. The critical chart from their presentation deck however were these two: 

Dividend sustainability is a hugely important sub-theme for the resources sectors because without the support of some of the dividends (6.5%+ in BP's case) it is possible more core investors could lose faith.  As shown by the above two charts the current situation is workable but a touch tight (assuming the company prefers to stay in the 10-20% gearing range) - and hence the importance of capex/opex/divestment initiatives. My instinct is - like last December - BP sub 400p is more than workable.  

One final European stock: Michelin.  Been a while since I have looked at this one on Financial Orbit but previously I was 'excited' by the c. Euro80 level given I wanted a bit of a discount due to poor price-mix.  Well that latter characteristic has not changed...

...still at least volumes and FX (no surprises there) were positives and allowed for all targets to be met/retained (Euro2.4bn+ operating profit, now above Euro700m in free cash flow) even if uncertainty did impact (including big declines in certain speciality areas such as agriculture and mining - again should be no huge surprise).  

 So where that puts us, I believe, is back where we were before.  A 5% free cash flow yield is in the early Euro80s...and that's the point to take a look.  The share correctly fell into the upper Euro80s today on what superficially looked ok numbers all aspects considered.

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