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Total Nigeria Reports Q3 2017 Results: Neutral Rating Maintained

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Monday, November 06, 2017 2:55PM /FBNQuest Research 

Negligible Cut To EPS Forecasts Over The 2017-19E Period
Total Nigeria’s (Total) Q3 PBT declined by -42% y/y to N2.4bn, driven by relatively weaker sales and higher petroleum product costs. Although PBT was in line with our estimate we have cut our 2017E EPS by -9% because Total’s performance was boosted by strong results on the other income and interest income lines. While other income was driven by subsidy reimbursements on fx differentials of N1.9bn in Q3, interest income was propped up by maturing fx forward contracts of N933m. 

Given that Total has no other maturing derivative exposures and the unpredictability of reimbursements from the FG, we have had to discount the impact of the other income line on this set of results. As a result, we have cut our EPS estimate over the 2017-19E period by around 3% on average. In 2018, we anticipate steeper competition within the downstream sub-sector of oil & gas industry due to relatively better access to fx for product importation. 

For now, we do not anticipate significant alterations to the FG’s product pricing template, especially as politics begins to take front row in 2018. Our new price target of N231.0 is lower by c.2% and implies a potential downside of -2.1% from current levels. Year-to-date, Total shares are down 21%, underperforming the market by c.60%. We have retained our Neutral rating on the stock. The shares are currently trading on a 2017E P/E multiple of 10.5x for a -4% decline in EPS in 2018E. 

Q3 2017 PBT & PAT down -42% y/y and -50% y/y respectively
Q3 2017 results showed declines across all key P&L line items. While sales of N68.3bn declined -9% y/y, PBT and PAT of N2.4bn and N1.3bn both declined by -42% y/y and -50% y/y respectively. These y/y declines are unsurprising given the strength of Total’s Q3 2016 performance. 

The topline decline was driven by a double-digit y/y fall in sales to N50.8bn at service stations. This, along with a gross margin contraction of -726bp y/y, more than offset positives coming through from a much improved other income line. Other income was buoyed by the FG’s reimbursement of subsidy-related fx differentials and maturing fx forward contracts. 

Sequentially, the trend was similar to the y/y ones, with declines across all key lines. While sales declined -6% q/q, both PBT and PAT were down -23% q/q and -30% q/q respectively. Total proposed a N3.00 interim dividend, ahead of our N2.00 estimate; it implies a yield of around 1%. 

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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