April 4, 2012

•Consistent with the rest of the Petroleum Marketing sector, Total Plc’s (Total) financial performance in the 12 months ended December 31st, 2011 reflected a moderation in its sales volume. The company posted an 8.3% YoY and a 4.2% QoQ increase in revenue to N44.1 billion bringing FY sales to N173.9 billion, 4.2% below our forecast.

•We believe Total’s turnover performance in Q4’2011 was primarily supported by seasonally better weather. However in 2011, sales volumes were constrained by increased competition from NNPC Retail and independent marketers.

Gross margin remain stable 

•Total’s FY 2011 cost of sales rose 8.6% YoY to N151.9 billion, which was 5.4% below our forecast for the period. However, like Mobil Oil, the company remained largely insulated from gross margin compression experienced by local major marketers due to higher product prices. Consequently, gross income rose 6.6% YoY to N22.4 billion tracking 4.5% ahead of our forecast despite a 2 bps decline in gross margin YoY to 12.9%.Like Mobil Oil, we suspect that Total’s relatively stable gross margins in FY’2011 was a result of competitive product pricing and better logistics obtained through Total’s relationship with its parent company Total S.A.  
 

Earnings fall short  

•Operating income for the period rose 10.1% YoY to N6.1 billion. However PBT rose a much more tepid 1.3% YoY to N5.9 billion, falling 9.2% below our forecast for the period on the back of higher financing cost. Interest charges rose 88.4% YoY to N875 million, reflecting Total’s increased use of locally sourced short-term borrowings during the period. Consequently, PAT declined 4.0% YoY to N3.8 billion which was nevertheless 6.1% higher than our forecast. 
 

Recent price declines improve value 

•We expect increased competition with the Petroleum Marketing sector to keep Total’s revenue growth subdued. Accordingly, revisions to our model implay a lower 3-year turnover CAGR forecast for the company, from ~11.7% to 10.1%. However, we expect the impact of lower turnover growth to be offset by improved margins--supported by lower interest expenses associated with managements reduced dependence on locally sourced shore term trade financing.  The net result leaves our target price little changed at N154.23, which sees the stock trading at a 10.1% discount at today’s close, largely due to the recent significant price declines.

•With this financial performance, Total trades at a trailing and forward PE of 12.4x and 9.5x respectively, well above peers corresponding 10.7x and 8.7x, which leaves it slightly richer than peers valuation wise. Nevertheless, based on current TP, we revise our rating on the stock to OVERWEIGHT from SELL.

Source: Company financials, ARM Estimates
 

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Reference: Total Nigeria Plc rewards investors with N7.00 dividend in '11 Audited result.

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