European Oil Giants Face Potential Shift to American Markets
The possibility of Shell and TotalEnergies, two major European oil companies, shifting their focus to Wall Street could have significant implications for London and Paris stock exchanges. This potential move signals a potential shift in the oil industry landscape.
Two major oil companies in Europe, Shell and TotalEnergies, are thinking about leaving their stock exchanges in London and Paris to move to Wall Street. This potential move could have a significant impact on the financial markets in both cities.
Shell, based in Britain, is currently the second-largest company on London's FTSE 100 index. It makes up 8.4% of the total market capitalization on the exchange. TotalEnergies, headquartered in France, holds the fourth spot on the CAC 40 index in Paris, representing 6% of its overall value.
Both local heavyweight companies have recently shown frustration over the low value of their stock compared to US oil majors. They have even considered the possibility of moving the listing of their shares to the United States.
A FTSE share index board in the atrium of the London Stock Exchange Group Plc's offices in London, UK, on Friday, Aug. 12, 2022. London Stock Exchange Plc Chief Executive Officer Julia Hoggett said the IPO pipeline in London remains robust, despite a slowdown this year thats been felt at many exchanges globally. Photographer: Jose Sarmento Matos/Bloomberg via Getty Images
A picture was taken of a FTSE share index board in the atrium of the London Stock Exchange Group Plc's offices in London, UK, on Friday, Aug. 12, 2022. London Stock Exchange Plc Chief Executive Officer Julia Hoggett mentioned that the IPO pipeline in London is still strong, even though there has been a slowdown this year that has affected many exchanges worldwide. The photo credit goes to Jose Sarmento Matos/Bloomberg via Getty Images.
Related article
London fears for its future as companies defect to Wall Street
Shares of TotalEnergies and Shell are currently trading at a price-to-cash flow ratio of 4.7 and 5.2 respectively. In comparison, Exxon Mobil (XOM) has a ratio of 8.4, while Chevron (CVX) stands at 7.6. A lower ratio suggests that a stock may be undervalued.
According to Alastair Syme, the managing director of global energy equity research at Citi, Shell and TotalEnergies have historically traded at a discount. However, this discount peaked around two years ago, highlighting a growing gap between European and US stocks.
Companies listed on US exchanges have access to a larger pool of capital, as mentioned by Syme in an interview with CNN. He believes that investors would feel more confident investing in European energy companies if they were included in the prestigious S&P 500 index of US stocks.
In a recent statement, TotalEnergies CEO Patrick Pouyanne revealed that the company is actively considering relocating its listing to New York. Pouyanne stated that discussions on the potential move will take place with the board in September, focusing on a practical approach for the future.
During a call with analysts, he mentioned a discussion with the board regarding a US listing. He pointed out that US shareholders are more interested in buying shares in the energy and oil and gas sector compared to European shareholders.
On another note, Shell CEO Wael Sawan expressed in March to Bloomberg that his company is undervalued in comparison to Chevron and Exxon Mobil. He mentioned that if efforts to increase the stock value do not close the gap, they will have to consider all options.
On a call with analysts last week, Sawan mentioned that Shell was not currently considering a move to Wall Street. Instead, the company's focus was on buying back shares to boost their value. On Thursday, Shell announced a $3.5 billion share buyback plan for the next three months.
London remains stagnant.
The city's main stock exchange, which is already facing challenges, would be unsettled even by the slightest indication that Shell might leave London.
In recent years, a number of companies have opted to leave the London Stock Exchange for other cities or have chosen to go public in New York instead. One example is British chipmaker Arm (ARM), which had the largest initial public offering of 2023 when it listed on Nasdaq in New York in September.
An exit by Shell and TotalEnergies would have a significant impact on their respective home stock markets, especially in London, according to Chris Beauchamp, chief market analyst at trading platform IG.
Beauchamp mentioned that if Shell were to leave, it would greatly affect the FTSE 100 index. Losing these companies would reinforce the idea that the US stock market is the primary market, with all others being secondary.
If Shell decides to leave, BP (BP) - the sixth-largest company in the FTSE 100 index - could also consider the same path. According to Syme from Citi, if Shell experiences a significant increase in value after relisting in New York, BP may explore a similar option.
On Tuesday, BP announced a first-quarter profit of $2.7 billion, which was lower than expected. This figure represents a 45% decrease from the previous year's first quarter earnings, primarily due to the decline in oil and gas prices.
BP CEO Murray Auchincloss mentioned on Tuesday that the company's current focus is on improving business performance, rather than relocating away from London. "It's not something we are considering at the moment. Our main priority is meeting our quarterly targets," he told Reuters.
Climate considerations
Lindsey Stewart, director of investment stewardship research at Morningstar, said that not too long ago, the thought of TotalEnergies re-listing in New York would have been unimaginable.
European shareholders are pushing integrated energy companies in Europe to strengthen their commitments to climate and other ESG issues, unlike in the United States. Last month, former Shell CEO Ben van Beurden expressed that the company believes it is undervalued but remains hopeful about staying in London.
He mentioned at the Financial Times’ Commodities Summit in Switzerland that European oil and gas companies must showcase their offerings for the future. He emphasized that the energy transition presents a significant value opportunity, not just a green cost.
Syme from Citi believes that the likelihood of Shell and TotalEnergies leaving is minimal.
"It can be beneficial to have a connection to a specific country," he mentioned. He pointed out that certain international energy companies might prefer to display multiple flags, rather than just the American flag, at their industrial locations.
Editor's P/S:
The potential departure of Shell and TotalEnergies from London and Paris stock exchanges to Wall Street is a testament to the increasing dominance of the US financial market. European companies are lured by the larger pool of capital and higher valuations available in New York. This trend is particularly concerning for London, which has already faced several high-profile defections in recent years.
While Shell and TotalEnergies have both expressed frustration over their undervalued stock prices compared to US peers, it remains to be seen whether they will ultimately decide to relocate. Shell has indicated that it is currently focused on share buybacks to boost its value, while TotalEnergies is considering a move to New York but has made no firm decision. However, if these companies do decide to leave, it would be a major blow to the European financial markets and further consolidate the US's position as the global financial hub.
