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.

Both, the 2011 and the 2010 show a quite depressing picture.

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:

mn EUR 2010 2009 2008 2007 2006 Avg
Op CF pre WC 282.8 235.6 251.0 526.6 567.2 372.6
WC -34.8 -97.1 -30.6 -214.4 -369.1 -149.2
Op CF pre WC 248.0 138.5 220.4 312.2 198.1 223.4
Inv. -89.4 -116.9 -126.4 -138.6 -169.4 -128.1
Free Cashflow 158.6 21.6 94.0 173.6 28.7 95.3
Depr. 135.8 138.6 63.4 92.5 147.0 115.5
Div -93.2 -112.4 -192.8 -192.8 -155.6 -149.4

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.


  • thanks for the quick check. i have also looked at this stock in the past and must say, that the i am not too sure about the business model and asset value. the two (?) refineries owned by the company are highly unionized. i cannot judge their efficiency.
    then there is the gas-station network of the “esso” brand, which is basically a weak retail business with the risk of having to clean up polluted lots after their closure. i do not know if the asset value of the real estate is fully represented on the balance sheet, however.

    • oscar,

      thank you for the comment. I think it might make sense to look at the real estate but as you pointed out, no one can be sure about any isseus with regard to pollution, toxic waste etc.


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