Monday, April 04, 2016 10:30AM /FBNQuest Research
Event: Total Nigeria reports Q4 2015 results
Implications: Moderate downward revisions to consensus 2016 estimates likely
Positives: Q4 gross margin expanded by 123bps y/y to 12.6%; PBT and PAT both up significantly q/q
Negatives: Sales declined 22% y/y to N48.7bn; and PAT also down 28% y/y to N1.9bn
Late last week, Total Nigeria (Total) reported Q4 2015 results which showed that while sales declined -22% y/y to N48.7bn, PBT and PAT also fell -5% y/y and -28% y/y to N2.5bn and N1.9bn respectively. We note that Total restated 2014 numbers as a result of the reversal of accruals relating to technical assistance and cost sharing. Total has existing General Assistance and Cost Sharing contracts with related entities, Total Oute Mer (TOM) and Total Raffinage Marketing (TRM) respectively.
In previous years, these agreements with TOM and TRM were expected to be registered by NOTAP and on that basis an accrual was recorded in the financial statements. However, as at 31 December 2015, NOTAP had still not registered the agreements. Additionally, the Financial Reporting Council (FRC) recently issued a rule that obligations arising from agreements within the scope of NOTAP that have not been registered by NOTAP should not be accrued for in a Company’s financial statements.
Similarly, the recent judgment of the Federal High Court, Lagos, dated 14 December 2015, on the interpretation of the NOTAP Act maintained that any contract within the purview of the NOTAP Act, which is not registered by NOTAP is illegal, void and unenforceable. As such, both events have led to a reassessment of the accounting treatment adopted by the company for the obligations arising from these agreements in the current and previous years.
Consequently, no charges related to the General Assistance and Cost Sharing Agreements have been recognised in the 2015 financial statements and charges recognised in the previous years’ financial statements have also been reversed. We expect management to provide clarity on the registration of its technical agreements going forward.
A gross margin expansion of 123bp y/y to 12.6% and a -23% y/y decline in opex partly offset the negative impact from the y/y topline decline and a 51% y/y rise in net finance charges. Sequentially, while sales came in flattish q/q, PBT and PAT were both up significantly q/q.
Total declared a final dividend of N12.0 (vs. our N5.0 est and N4.2 consensus) which works out to a dividend yield of 7.8%. This implies a total div of N14.0 (Total paid an interim of N2.0) and a dividend cover of around 0.8x.
On a full year basis, sales, PBT and PAT all declined, by -14% y/y, -5% y/y and -24% y/y respectively. Compared with our forecasts, while Q4 sales were broadly in line, PBT and PAT beat significantly. Relatively lower opex and net finance charges were key drivers behind the variance. Full year PBT of N6.5bn came in well ahead of consensus forecast of N4.6bn.
Even though full year PBT declined y/y, we believe Total’s strong dividend is likely to attract investor’s attention in the near term. However, we anticipate that the persistent nationwide fuel shortages could materially hurt earnings in 2016 and would be a concern to investors.
As such, we expect moderate downward revisions to consensus estimates for 2016E. At current levels, on our published estimates, Total shares are trading on a 2016E P/E multiple of 21.3x for an EPS growth of 10% in 2017E. Year to date, Total shares have gained 4.6%, outperforming the NSE ASI by 15.6%. We rate the stock Neutral.
Our estimates are under review.
Total Nigeria Q4 2015 results: actual vs. FBNQuest Research estimates (N millions)