Euro Majors Grapple With Clashing Priorities

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European oil companies are facing a difficult challenge in the wake of the Ukraine crisis balancing investment in near-term cash-generating upstream assets with spending on nascent transition portfolios. Equity valuations of the big European integrateds have stubbornly traded at big discounts to both their oilier US peers and pure-play renewables firms. That is leading some firms to adjust their strategies. Analysts say the market is still working out how to value the clean energy businesses within the green-black model embraced by the European majors. BP, Shell and TotalEnergies currently trade at share price multiples of around six times forward earnings, while the more fossil-focused US majors trade at over double that. “Clear difference in approach, clear difference in valuation. I'd argue the transition story is the bit that is misunderstood. Yet, you might see those businesses being valued in pure plays elsewhere at much higher multiples,” Jonathan Waghorn, portfolio manager at the Guinness Global Energy Fund, said at the recent International Energy Week conference in London. Companies are finding it harder to enhance the typically more modest returns from renewables and other low-carbon technologies because of their high-risk commodity businesses running alongside, he argued.

Corporate Strategy , Equity and Debt Markets
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