Total Nigeria Plc: Downstream At Its Best


Tuesday, August 09 2016 6:07pm /GTI

Investment Highlight

Half Year 2016: Revenue up by 30%, Profit after Tax up by 271% to set a record earnings period 

Total Nigeria (or the “Company” or “Total”) Plc, a petroleum marketing and distribution Company released its half-year earnings for the period ended June 30, 2016 on the 29th of July 2016.

The result showed a 29.9% growth in revenue to ₦145.48 billion ($463.31mn) from ₦111.97 billion ($356.59mn) Year-on-Year (YoY) while profit after tax grew by 270.55% to ₦8.93 billion ($28.45mn) from ₦2.41 billion ($7.68mn) YoY.

Gross profit grew by 80.02% while cost of sales declined by 4.39%. Operating profit grew by 336.09% YoY while finance cost declined by 61.76% YoY.

The Company has proposed an interim dividend of ₦3.00 per share for the period ended June 30, 2016.

First Quarter ended 31 March, 2016: Revenue down marginally; Profit before Tax up by 302%

Revenue was down by 0.56% to ₦59.70 billion ($190.14mn) from ₦60.04 billion ($191.21mn) Quarter-on-Quarter (QoQ) while profit before tax grew by 301.67% to ₦3.84 billion ($12.23mn) from ₦0.96 billion ($3.05mn) QoQ.

Investment Report Summary

Downstream is profitable; ask Total Nigeria! 

The Nigerian government somewhat deregulated the downstream sector when it changed the pricing model for PMS in May 2016 capped at N145 per litre. It was a welcomed development to companies that had positioned to take advantage of such government policy.

Total recorded higher downstream margins as it grew top line and bottom-line aggressively. Gross profit margin and operating profit margin peaked at 15.74% and 10.63% respectively while return on asset increased to 7.15%.

Can Total sustain growth over the next five years? 
Total’s stock price has increased by more than 55% since May 2016 bringing its YTD return to 61.35%. With trailing PER shrinking to a multiple of 9 times earnings, the growth of the company seem to be well priced into the stock (industry PER at 13.90x).

Globally, the downstream sector now has an unprecedented opportunity to expand owing to depressed crude oil prices. There is the need for Total to review its long term growth strategy which should include growing and optimizing retail outlet operations.

Although debt to equity ratio grew to levels last seen in 2014, the company’s liquidity ratio remains solid at 0.97x thereby favouring growth plans.

Nigeria’s oil industry outlook still positive

The new foreign exchange regime in Nigeria still lacks the needed elasticity and discipline to operate as a free float exchange system. This has impacted businesses that depend largely on FX for transactions by capping gains.

However, Nigeria has bolstered efforts to improve refining capacity and encouraged private sector participation in refinery construction; an effort that could stabilize FX demand and supply and increase consumer sensitivity to higher fuel prices in the near future.

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