Sector valuations – Energy all fired up
It’s interesting looking at sharemarket sector valuations post the most recent reporting period (still underway).
This Goldman Sachs slide of global sector valuations (12 month forward price/earnings PE) shows that the Energy sector is an outlier, trading at the low-end extreme of its historical PE ratio. This reflects the huge earnings windfall that energy sector companies have enjoyed over the past year, largely as a consequence of supply disruptions due to the war in Ukraine pushing up prices, whereas power demand has remained relatively strong.
Source: Goldman Sachs
In 2022, the six largest western oil companies made more money than in any year in the history of the industry: over $200 billion, largely from selling oil and gas – the fossil fuels the world must replace in coming years to avert climate change.
The windfalls that BP, Chevron, Equinor, ExxonMobil, Shell, and Total revealed in their end-of-year results sparked accusations of “profiteering from the war in Ukraine”. After years of pressuring Big Oil to curb production, political leaders changed tack last year as prices surged, calling on companies to boost output or help them procure replacements for Russian fossil fuels following the invasion of Ukraine.
Those companies that were best positioned to respond were the most rewarded by investors. Hopefully, a decent proportion of the enormous profits will be used to assist in the green energy transformation.
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