Esso S.A.F. – less attractive at a second glance
After having quickly analysed “Magix Six” stock Esso S.A.F a few days ago with some encouraging results, I dived a little bit into the company.
Despite beeing a subsidiary of ExxonMobil, the homepage is “french only”.
Luckily, I managed to understand at least the two investor presentations they have on their website.
Profitability has lapsed significantly due to, among others, special taxes, major strikes and overcapacity. The P&L swings mostly with the oil price. As Esso carries significant amount on oil investory, any oil price fluctations are actually marked to market.
For 2009 for example, the 7 EUR per share profit would have been a 6 EUR loss per share if the effect of Oil prices would have been eliminated, for 2010, the 11,50 EUR profit would have been almost nil.
Let’s take a look at free cashflows over the last five years:
|Op CF pre WC||282.8||235.6||251.0||526.6||567.2||372.6|
|Op CF pre WC||248.0||138.5||220.4||312.2||198.1||223.4|
One can clearly see, that especially due to large working capital fluctuations (which might be triggered by oil price movements), free cashflows are always positive but very volatile.
Based on the 12.9 mn shares outstanding, the 95.3 mn 5 year avg free Cashflow translates into 7.39 EUR free cash flow per share. Due to the volatility, I would use a discount rate between 12-15% for calculating EPV which would result in an EPV range of 49 EUR to 61 EUR, which is below the current market value of 63 EUR.
I save myself the replacement or reproduction value analysis, even if there would be some extra assets. I consider it highly unlikely that minority shareholders could profit in any way from them.
The only positve for the stock is the high dividend which however has not been fully generated by free cashflows but to a large percentage (1/3) from the liquidation of assets.
Summary: Due to the huge volatility and the detoriation of the business in the last few years, Esso S.A.F. looks quite unattractive despite the historical low share price and the still high dividends. For the moment, I don’t find any strong indication that the situation will change or that one could expect an “asset conevrsion” event like a take over etc.