TotalEnergies Faces Crosscurrents: BofA Trims Target Amid Cash Conversion Woes

TotalEnergies, the French energy giant pivoting aggressively toward renewables and low-carbon projects, has faced a stark reality in its latest quarter: weak cash conversion is testing its financial resilience despite strategic progress. Bank of America Global Research (BofA) responded by trimming its price target for totalenergies (TTE) to €66.00 from €67.00, citing short-term headwinds in refining margins and working capital pressures. Yet the firm maintained its Buy rating, underscoring a nuanced view of the company’s long-term potential.

Q1 2025: A Mixed Performance

TotalEnergies’ first-quarter results highlighted both strengths and vulnerabilities. While hydrocarbon production rose 4% year-on-year to 2.56 million barrels of oil equivalent per day (Mboe/d)—driven by projects like the U.S. Ballymore field and Brazil’s Mero-2/3—its financial metrics lagged. Adjusted net income fell 18% YoY to $4.2 billion, while cash flow from operations (CFFO) dropped 14% YoY to $7.0 billion. The primary culprit? A perfect storm in the Downstream segment.

The Downstream Dilemma

Refining margins in Europe collapsed by 59% YoY to $29.4 per ton, squeezing the Downstream division’s adjusted net operating income to a mere $0.5 billion—down 56% from a year earlier. Operational hiccups at key refineries in France (Donges) and the U.S. (Port Arthur) compounded the pain, while petrochemical margins in Europe also weakened due to overcapacity.

Working capital swings further exacerbated the cash crunch. A $4.4 billion rise in working capital—driven by seasonal gas payments, inventory builds, and prior-quarter reversals—reduced liquidity, even as the company spent $4.5 billion on low-carbon projects, including battery storage and solar acquisitions.

Why BofA Trimmed the Target (But Still Buys)

While BofA acknowledged the near-term cash squeeze, its analysts emphasized TotalEnergies’ strategic moat. Key points:

1. Production Growth Holds Steady: The company reaffirmed its >3% annual hydrocarbon production growth target, supported by upcoming projects like Brazil’s Mero-4 (Q3 2025) and Texas’ Rio Grande LNG.
2. Renewables Pay Dividends: Renewable capacity grew to 27.8 GW gross, with new contracts like a $1.5 TWh clean power deal with STMicroelectronics. Green hydrogen partnerships, including a 30,000-ton/year supply deal for Germany’s Leuna refinery, signal scalability in emerging markets.
3. Balance Sheet Flexibility: Despite a slight rise in gearing to 14.3%, TotalEnergies maintained shareholder returns—hiking its interim dividend by 7.6% to €0.85/share and executing $2 billion in buybacks—while keeping debt within conservative targets.

Analyst Christopher Kuplent, who covers the Energy sector for BofA, argued that the “weak cash conversion is temporary”, with working capital pressures set to reverse by year-end. The €66.00 price target reflects a 13% upside from recent trading levels, assuming TotalEnergies’ renewables growth offsets refining volatility.

The Crosscurrents Ahead

TotalEnergies’ path remains fraught with risks:
- Oil Price Sensitivity: A $10/barrel drop in Brent crude (currently ~$70) would slash adjusted net income by ~$2.3 billion.
- Geopolitical Volatility: Escalating Russia-Ukraine tensions and U.S. trade policies threaten European gas markets, where TotalEnergies’ LNG contracts (e.g., with NextDecade in Texas) are critical to offsetting Russian supply.
- Downstream Underperformance: Persistent weak refining margins in Europe could persist if petrochemical overcapacity isn’t resolved, limiting near-term earnings recovery.

Conclusion: Navigating the Energy Transition’s Rough Waters

TotalEnergies’ Q1 results underscore the paradox of its dual-energy strategy: growth in renewables and LNG is real, but legacy refining and petrochemical businesses remain exposed to cyclical downturns. BofA’s cautious price target trim reflects this tension, yet its Buy rating acknowledges the company’s financial discipline and long-term vision.

With $17.5 billion in 2025 net investments—$4.5 billion of which is allocated to renewables—and a dividend policy that prioritizes shareholder returns, TotalEnergies is betting its future on low-carbon assets. If it can stabilize refining margins and capitalize on rising demand for green hydrogen and clean energy, the stock could rebound. For now, investors are left weighing whether the company’s €27.8 GW of renewables—up 18% YoY—is enough to offset its hydrocarbon-heavy past.

The verdict? Hold for the long game, but brace for volatility. As BofA’s Kuplent put it: “TotalEnergies isn’t just an oil company anymore—but it’s not there yet.”