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27-04-2024 : Will New York become TotalEnergies' main stock exchange?

At this stage, it's just a thought, announced yesterday, as managers must have them, without them necessarily materialising.

In this particular case, the difference in multiples between the American and European oil majors is impressive and may tempt managers to think that a main listing in New York could bring TotalEnergie's multiple into line with that of its American peers: Exxon is valued at 6.4x EBITDA 2024, Chevron 6.1x, compared with 4.3x for Total (Shell is at 4.1 and BP 3.2). This gap is all the more striking given that TotalEnergies is one of the best managed majors, if not the best managed. It is therefore understandable that American shareholders, who hold more than 40% of the company's capital, should be pushing the wheel, especially as their percentage is increasing due to the withdrawal of European shareholders who are more sensitive to the challenges of the energy transition. This is not the least of the paradoxes, given that TotalEnergies is the most advanced of the majors in this field, and that it has not reduced its ambitions, unlike Shell and BP.

But the level of multiples does not just depend on the listing market, it also depends on risk and growth characteristics. By this measure, a company listed in the United States, but with a smaller US share of its assets than its competitors, could be at a discount to them. 

The transfer of the main listing cannot be decreed; it is observed on the basis of trading volumes. In order for New York to become its main listing, TotalEnergies would probably have to make a major share placement in the United States, where it is currently only listed in the form of ADRs. A full listing would probably be required. If such a move were to occur, and if TotalEnergies were thus better valued, its cost of capital would fall, since at constant free cash flows, the discount rate required to make these flows equal the value would be lower; and employees would see their profit-sharing and incentive schemes invested in their employer's shares increase in value.

The usual critics of TotalEnergie will no doubt talk of betrayal, while others will regret this development if it comes to fruition. But you can't :

- Refuse to set up pension funds, the creation of which had been voted on at first reading in 1997 before the dissolution of the French parliament sent the text to oblivion, where it never came back despite the political changeover;

- Granting unlimited tax advantages to life insurance euro funds, i.e. debt securities; and limiting them for PEAs invested in equities;

- And lamenting the shallowness of our equity market, resulting in lower valuations in a number of cases.  

 

13-04-2024 : The strange accounting for capital gains on partial disposals of fully consolidated subsidiaries.

Last week, Wendel sold 9% of Bureau Veritas on the stock market for €1.1 billion, reducing its controlling stake from 51% to 42% of the voting rights. The capital gain was €800m, but did not appear in the profit and loss account, which goes against common sense.

In doing so, Wendel is simply following the IFRS accounting principles that apply to it, which stipulate that as long as the controlling shareholder remains the controlling shareholder, the capital gains generated by block sales do not appear in the income statement. Indeed, in this logic of continuing full consolidation, all the assets and liabilities of Bureau Veritas remain consolidated within the Wendel group, and only the share of minority interests and that of the Wendel group in the result and in shareholders' equity are affected. The only change in Wendel's consolidated balance sheet is the appearance of €1,100 million in cash, the counterpart of which, in order to respect the balance sheet equilibrium, is an adjustment (increase) of €1,100 million in shareholders' equity, without the €800 million capital gain being taken to income or other comprehensive income (OCI).

If the accounting rules considered that the €800m capital gain should appear, it would be sufficient to include it as such in the income statement and to adjust equity (excluding profit) by only €300m.

When Wendel, by selling a new block, falls below a threshold of voting rights that no longer gives it control of Bureau Veritas, the capital gain on this block will then appear in the income statement, together with the entire unrealised capital gain on its residual stake. The latter will be recorded in Wendel's accounts on the basis of its market value at the time of the change from full consolidation to the equity method. Fluctuations in the value of this holding could then appear each year in the income statement (this is an option).

We therefore have the unusual situation of a capital gain realised last week that does not appear in the profit and loss account, and another one to come that will appear in the profit and loss account because of the change in consolidation method, even though the holding will only have been partially sold. It is true that IFRS and US GAAP have freed themselves from the straitjacket of law and taxation to take a more economic view of situations, but in this particular case, it does not seem to us that this corresponds to real economic or financial life. Understand who can! 

Fortunately, this situation is rare, because when industrial or financial groups sell a subsidiary, they usually sell 100% of their stake. Moreover, in the case of Wendel, an investment company, the profit and loss account is less important than an extra-accounting valuation of its net assets in assessing its performance.