While the banking sector is in turmoil, energy companies are enjoying record profits. In this note, we look at the 60 or so Energy sector firms within our EM 1000 Companies Index and identify those with the strongest performance metrics. We also benchmark these EM firms against leading developed market peers such as Chevron, Exxon Mobil, Shell and Total Energies to highlight those firms sitting at the top of the global performance league.
Within the Energy sector, we find that renewables firms score well on growth (eg total assets), but are typically less solid on risk (high leverage and systemic risk) and quality (volatile investor sentiment). Traditional oil & gas firms tend to do better in relation to valuation (low EV/EBIT) but are also hampered by risk (high gearing).
Overall, our analysis highlights large-cap EM names such as Aramco, Petrobas and CNOOC as worthy of investor attention. On the other hand, Indian giant, Reliance Industries, appears less attractive; its profitability measures, such as margins and ROE, are well below its peers.
The Energy sector is well-positioned
In this report, we benchmark the largest emerging markets Energy firms against their developed market peers and highlight some of the best and worst-performing operators in the space.
As highlighted below, Energy is the fifth-highest scoring sector (out of 14) in the Tellimer EM 1000 Company Index. The sector scores best for valuation, whereas risk is an area of relative weakness. By geography, Energy listings in East Europe (valuation) and Hong Kong (valuation and quality) fare best, while China Shenzhen listings perform poorly (for risk, quality and valuation).
Company-level analysis
High-scoring energy firms include Saudi Aramco (quality and profitability), Brazil's Petrobras (valuation, momentum and profitability), Russia's Novatek (quality and profitability) and China's CNOOC (momentum and profitability). Low-scoring Index constituents include India's Reliance Industries (profitability), China's Sinopec (profitability, growth), Sungrow Power (valuation, risk, and momentum) and Longi Green Energy (momentum).
To help investors benchmark the performance of these firms in our Index, we have also scored, on a comparable basis, some of the leading developed market firms in this space. Chevron and Exxon Mobil marginally outperform European peers such as Shell and TotalEnergies.
The best EM firms are typically outperforming these DM benchmarks in relation to quality (higher operating margins and dividend payouts), profitability (better ROA) and valuation (lower EV/EBIT and P/E ratios).
Below we present the overall Index scores of selected emerging markets and developed market energy firms. More details regarding our scoring methodology are presented in the Appendix.
The best-performing emerging market Energy firms
The five firms highlighted below typically score well across a broad range of indicators, notably for profitability, valuation and quality. However, risk is an area of relative weakness.
Saudi Aramco: This Saudi oil and gas giant scores particularly well for quality (sustained high operating margin) and profitability (high ROA and ROCE). Aramco's quality ranking benefits by virtue of the firm's huge scale. Low production costs translate into high margins, boosting the profitability score. The difficulty of adding material extra capacity to such a large business pulls down the firm’s growth score.
Petrobras: This Brazilian oil and gas firm scores highly for valuation (low P/E and EV/EBIT ratio), momentum (rising ROE) and profitability (high operating margin and ROA). The firm's overall score is dragged down on the grounds of risk (high debt gearing).
Novatek: This Russian oil and gas firm stands out for profitability (high ROCE and net profit margin) and quality (consistently high operating margin). The weak point is momentum (falling margins).
CNOOC: This Chinese oil and gas company generates high scores for momentum (rising revenues) and profitability (high margins). The firm's overall score is dragged down on growth (such as weak total assets growth).
Tongwei: Renewable energy firms typically underperform their traditional energy peers in our Index. But this Chinese firm is a notable exception. It scores well for momentum (ROE heading upwards), valuation (low P/E ratio) and growth (eg: EBIT). However, the firm is risky as hinted by the low-risk score (high debt gearing and volatile beta).
Appendix
The Tellimer EM 1000 Company Index
The Tellimer EM 1000 Company Index uses purely objective criteria to rank the 1,000 most-investable emerging market stocks across 36 metrics arranged across six dimensions. Further details are presented here. The full dataset can be accessed here. We have used this dataset to analyse the EM Energy space.
Developed Market Energy firms
We have scored four high-profile developed market energy sector companies on the same basis we use for our EM 1000 Companies Index. All four firms score above average (with scores in the 60s, on a 100-point scale). Momentum is the strongest area of performance for this group (operating margins are typically rising). In contrast, several of these firms score poorly for quality (margins are not sustainably high).
Emerging Market Energy firms
We highlight below some of the best and lowest-scoring energy firms within our EM 1000 Company Index. The best-performing names score most strongly for profitability (high ROA), valuation (low EV/EBIT and P/E ratios) and quality (high dividend payouts). Risk (high debt gearing) is an area of relative weakness.
The lowest-scoring names typically struggle in relation to profitability (low margins) and risk (high debt gearing). In contrast, they perform better in relation to valuation (low price/ sales ratio).
