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Total Nigeria Q3 2016 Results Review - Underperform Rating Maintained


Thursday, December 08, 2016 12:15 PM /FBNQuest Research

Slight cuts to 2016-17E EPS forecasts; PT down -4%
In Q3 2016, Total Nigeria’s (Total) sales were up 58% y/y to N74.7bn while PAT grew faster. Similar to the trend observed for peers, key P&L lines declined q/q, driven by a -415bp q/q gross margin contraction. New stock of relatively more expensive inventory was the primary driver, following a gasoline price hike of c.50% in H1.

Additionally, Total posted record sales in Q2 as independent marketers struggled to retain market share due to fx supply constraints. Compared with our forecasts, while sales were ahead by 13%, earnings were behind by 27% because of negative surprises on both cogs and opex lines. As such, we have lowered our gross margin forecasts by around -50 bps on average and raised opex by c.4% over the next two years.

Overall, we have cut our EPS estimate by around 5% over the 2016-17E period. Our new price target of N210 is lower by a similar magnitude. In Q3, Total proposed an interim dividend of N7.00/share, following on from a N3.00 interim dividend declared post H1 2016 results.

Consequently, this aggregates to a total interim dividend of N10.00 in 2016. To put this into context, Total paid a total dividend of N11.00 in 2015. We forecast a total dividend payout of c.95% and a final DPS of N29.00 for 2016E. Strong earnings growth delivered in 9M 2016 and the series of interim dividends declared have sparked a resilient rally in Total shares.

Total shares are up 84% (vs. NSE ASI’s -7%) over the last six months. We believe this rally is overdone. At current levels, we see an implied downside potential of -31% and retain our Underperform rating on the stock. The shares are currently trading on a 2016E P/E multiple of 7.4x for EPS decline of -57% in 2017E.

Q3 2016 PBT and PAT both up significantly y/y
While Q3 2016 sales grew 58% y/y, PBT and PAT were both up 563% y/y and 651% y/y. Y/y growth was flattered by easy comparables. Sales were primarily driven by higher pricing for key petroleum products mainly from service stations (Retail), which were up by 70% y/y to N58bn.

Retail sales accounted for around 77% of the group’s topline, up from 70% in Q2. Sales for the General Trade segment were also up 45% to N57.8bn. Sequentially, sales, PBT and PAT all declined 13% y/y, 55% and 56% y/y respectively. Compared with our estimates, while sales beat by 13%, PBT was behind by 29% because of negative surprises on the gross margin and opex lines.

Related News
1.       Total Nigeria Plc is Positioned for a Stellar 2016; Shares Rated Neutral

2.      Total Nigeria Plc Downstream At Its Best

3.      TOTAL Declares N8.93 bn PAT in Q2 2016 Result Proposes N3 Interim Dividend SP N206.00k

4.      Total Nigeria Plc Records 65% YoY Sales Growth in Q2'16

5.      TOTAL Q1’16 Results – Gross Margin Expands to 14.9%; Upwards Revision to Consensus 2016 Estimates Expected

6.      TOTAL Declares N2.83 bn PAT in Q1 2016 Result,(SP:N147.00k)

7.      TOTAL: OPEX Reduction Lifts Q4’15 Earnings

8.     TOTAL: Sales Declines by 22% YoY in Q4’15; Stock Rated Neutral

9.      TOTAL Proposes N12 Final Dividend in 2015 Audited Result,(SP:N153.82k)

10.  TOTAL Records Decline across All Key P L Line Items in Q3 15 Results

11.   TOTAL Posts 19.47 decline in PAT as revenue down by 10.41 in Q3 15

12.  TOTAL Q2 2015 buoyed by other income line

13.  Total Nigeria rated NEUTRAL after Q2 2015 results by FBNC 

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