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Total Nigeria Reports Q1 2017 Results - Gross Margin Contracts to 11.2% YoY

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Wednesday, April 26, 2017/ 4:32 PM /FBNQuest Research

Event
: Total Nigeria (Total) reports Q1 2017 results
Implications
: Cuts to consensus 2017E estimates expected
Positives
: Q4 sales of N80.5bn up 35% y/y and PBT up 11% y/y to N4.3bn
Negatives
: Gross margin contracted -371bps y/y to 11.2%; PAT declined -5% y/y due to a relatively higher tax rate of 37.1%

This afternoon, Total Nigeria (Total) reported Q1 2017 results which showed that while sales and PBT grew by 35% y/y and 11% y/y respectively, PAT declined by -5% y/y to N2.7bn. Sales were boosted by a 63% y/y growth in lubricant sales. White products sales were up 30% y/y to N67.4bn and accounted for c.83% of Total’s topline, down from 87% a year ago.


According to management statements, a breakdown by segments revealed that sales from service stations (Retail), which accounted for around 71% of group sales, were up by 28% y/y to N57.0bn. Additionally, sales for the Corporate Customer (referred to as General Trade) segment were up 97% to N19.8bn. Growth in both businesses offset the y/y decline in the Aviation business, which was down -82% y/y to N3.7bn.


Although Total’s g
ross margin contracted by -371bps y/y to 11.2%, this was not enough to offset benefits coming through from the topline growth. Opex came in flattish y/y at N5.2bn. Total posted an fx revaluation gain of N371m vs. a –N15bn fx-related loss in Q4 2016.

However, PAT declined by -5% y/y because of a relatively higher tax rate of 37.1% compared with 26.5% in the corresponding quarter of 2016. Sequentially, the trend is similar as sales and PBT both grew 14% q/q and 27% q/q respectively, while PAT declined by -16% q/q. Again a relatively higher tax rate compared with Q4 2016 is responsible for the y/y earnings decline. The q/q gross margin contraction was more significant at -1298bps q/q.


Compared with our estimates, while sales were ahead by 26%, PAT beat by only 5% due to negative surprises on the gross margin line which partially offset positives on the opex, finance expense and other income lines. On an annualised basis, Total pre-tax profit of N4.3bn is tracking behind consensus PBT estimate of N20.9bn. As such, we expect downward revisions to consensus 2017E estimates. Year to date, Total shares have declined -12% underperforming the NSE ASI by 7%. We rate the stock Neutral.


Tota
l Nigeria Q1 2017 results: actual vs. FBNQuest Research estimates (N millions)


 

Q1 2017

 

Actual

Y/y

Q/q

FBNQuest est.

Actual vs FBNQuest est. (%)

Sales

80,463

34.8%

13.8%

63,884

26.0%

cost of sales

-71,463

40.6%

33.2%

-54,302

31.6%

Gross profit

8,999

1.2%

-47.3%

9,583

-6.1%

-gross margin

11.2%

-371bps

-1298bps

15.0%

-382bps

Operating expenses

-5,223

0.7%

5.0%

-6,069

-13.9%

Other income

687

125.5%

-108.2%

458

50.1%

Operating profit

4,464

11.3%

20.8%

3,971

12.4%

Net int. and similar chgs

-213

28.6%

-38.4%

-230

-7.5%

PBT

4,250

10.6%

26.9%

3,741

13.6%

-PBT margin

5.3%

-115bps

55bps

5.9%

-57bps

Tax

-1,579

55.0%

757.7%

-1,197

31.9%

Tax rate

37.1%

0bps

3165bps

32.0%

515bps

PAT

2,672

-5.4%

-15.6%

2,544

5.0%

-PAT margin

3.3%

-141bps

-115bps

4.0%

-66bps

Other comprehensive income

0

n/a

n/a

0

n/a

Total comprehensive income

2,672

-5.4%

-15.6%

2,544

5.0%

  Source: NSE, FBNQuest Research estimates

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