There are two sides to every story and when it comes to the rise in oil prices, two French stocks clearly highlight the difference between the winners and losers of current market dynamics.
Tiremaker Michelin [EURONEXT:ML.] lowered part of its full-year guidance last month due to an uncertain demand outlook, and postponed its capital markets day to sometime in the Spring, saying it wasn’t possible to make any forecasts currently.
Supply Chain
The French group has been grappling with supply chain issues due to the pandemic and has now been hit by rising inflation impacting the cost of its raw materials. Shut down of operations in Russia, following the country’s invasion of Ukraine, and weak demand in China also affected sales volumes, which saw a 2.4% decline in the first nine months of the year.
The share price has lost 31% year-to-date and is currently at EUR25.27.
In its third quarter results, Michelin cut its full-year cash flow guidance from more than EUR1.2bn to EUR700m.
In a call following the release of the results, the group’s finance chief said they now expect the total impact of inflation included in the cost of goods sales to be between EUR2.5bn and EUR2.6bn this year, according to Reuters.
Analysts at JP Morgan have advised its customers to sell the stock and had previously reduced its price target from EUR23.50 to EUR20. Meanwhile, Stifel has reiterated its hold recommendation on the stock and lowered its price target from EUR29.5 to EUR28.
Now, Michelin’s management has set its sights on creating more sustainable tires.
The company announced in October that it approved tires made up of 45% sustainable materials, compared to 29% currently. The group is aiming to achieve 10% energy reduction in two years.
While Michelin focuses on getting the business through this difficult period, another French company has reaped the benefits of the current energy crisis pushing prices up, despite being plagued by worker strikes.
Energy windfall
TotalEnergies [EURONEXT:TTE] reported a net income of USD9.9bn in the third quarter, up from USD4.8bn over the same period in 2021. The increase was attributed to higher oil and gas prices, refining margins and the good performance of trading activities.
This is all despite the company also announcing an impairment of USD3.1bn related to Russia and dealing with strikes for nearly a month.
In October, TotalEnergies has had to deal with strikes at its refinery sites in France, with workers demanding salary increases in light of rising inflation. At the end of the month, workers voted to end the strikes at three out of four refineries.
With the rise in oil and gas prices, fossil fuel companies have all announced significant profits this year, drawing criticism.
Profits at the world’s seven largest oil companies, including TotalEnergies and Shell, have risen to nearly GBP150bn this year, according to S&P Global Market Intelligence.
While the European Union has introduced a windfall tax on oil companies, amounting to EUR25bn, according to Transport & Environment, this doesn’t even cover the EUR29bn of cuts that were made to fuel duty.
Both UBS and JP Morgan have ‘Buy’ratings on the stock, with a price target of EUR63 and EUR66, respectively.
Year-to-date, TotalEnergies’ share price is up more than 25% to EUR56.50.
