Corporate Strategy: Chop Chop Analysis of Total Group

Résumé du document

Total is France's largest corporation as well as the fourth largest publicly-traded integrated oil and gas company in the world. Total is involved in three major segments: downstream, upstream, and chemicals. In the following report, we carefully analyzed these three business segments to determine whether or not Total should vertically integrate, diversify, divest, or just remain put. Our performance measures (EBITDA margin, ROA, net income and operating margin, etc.) revealed that upstream is profitable and generating the most value, while downstream and chemicals are maintaining profitability, however could reduce costs and increase efficiencies. As a result, we recommend that Total remain put and continue pursuing its corporate strategy: to remain one of the most dynamic and successful energy groups in the world today.In the downstream segment, Total specifically deals with trading, shipping, refining and marketing of petroleum products, automotive fuels and LPG. By using measures such as EBITDA margin, operating and net income margin, and ROA, it is clear that the overall downstream segment is profitable and efficient.

Extraits

[...] The report was more future and long-term oriented whereas our analysis is historically based. Total has the of stake in Sanofi(chemicals segment) and the stake in CEPSA(upstream and downstream segment). After analyzing probability and results of selling, Total is likely to sell Sanofi because the company is not a core asset and Total wouldn't benefit from Sanofi this year. Furthermore, this move will drop Total's pro-forma 2008 price cash flow multiples by 8%. Selling CEPSA is unlikely since it is content with status quo but if it does, it will drop multiples by 11%. [...]

[...] With respect to the market, the upstream sector has undergone some fundamental changes in the past few years: focus has moved away from small oil companies to big oil companies due to technology, international spread, and access to these opportunities. Also, OPEC has transformed itself, giving greater confidence in a stable oil price. For the major players, there is now little left to do. This, combined with stability in oil prices, gives a platform to measure underlying performance through the purest of indicators: EBIT margin, independent of capital structure, and testament of operational efficiency. [...]

[...] However, this small decrease can be explained by Total's investment phase of new businesses. In 2006, Total acquired not only Sealocrete, Wetherby, Paso and Pegaso, but it also has enhanced the positioning of its refining assets with new projects involving conversion and desulphurization units. Even though the EBITDA margin did decrease from 2005 to 2006, Total's EBITDA margin is still comparatively high with respect to the other specialized firms in the downstream segment. Thus, this is a strong indicator that Total is just as efficient, if not more efficient than its competitors. [...]

[...] Operating margin and net income margin of Total chemicals are not high compared to others. If there had been some cost savings by synergies, Total's operating margin should have been higher. It is unclear as to whether the low margin is due to inefficiency or lack of synergies. Furthermore, EBITDA margin for Total is very high but we can estimate EBITDA margin for chemicals part will be lower since Total's operating margin and net income margin as a whole are higher than those of chemicals segment. [...]

[...] Corporate Strategy : Chop Chop Analysis of Total Group Total is France's largest corporation as well as the fourth largest publicly-traded integrated oil and gas company in the world. Total is involved in three major segments: downstream, upstream, and chemicals. In the following report, we carefully analyzed these three business segments to determine whether or not Total should vertically integrate, diversify, divest, or just remain put. Our performance measures (EBITDA margin, ROA, net income and operating margin, etc.) revealed that upstream is profitable and generating the most value, while downstream and chemicals are maintaining profitability, however could reduce costs and increase efficiencies. [...]