TOTAL: OPEX Reduction Lifts Q4'15 Earnings


Thursday, April 07, 2016 8:23AM /Vetiva Research

·         EPS beats Vetiva and Consensus estimates
·         Revs underperform amidst tight fuel distribution
·         Board of Directors propose final dividend of N12.00/share
·         Tough outlook: TP cut to N145.93 (Previous: N161.86)

OPEX reduction lifts Q4 earnings
TOTAL’s FY’15 EPS surprised to the positive following better than expected Q4 earnings performance. FY’15 EPS came in at N11.92, ahead of Vetiva (N9.70) and consensus (N9.02) estimates. Following a historically weak Q3, earnings rebounded in Q4 following a 39% q/q reduction in OPEX to N3.4 billion (OPEX had averaged N5.6 billion in the prior 7 quarters).

Amidst acute petroleum product tightness, TOTAL reported 3% q/q revenue growth; on a y/y basis however, revenue declined 14% to N208 billion (Vetiva and Consensus: N212 billion). Profit before tax (PBT) came in at N6.5 billion (Vetiva estimate: N4.8 billion).

We recall that PBT was bolstered by interest and exchange rate differentials to the tune of N1.7 billion received in Q2 from the Petroleum Product Pricing & Regulatory Authority (PPPRA) in Q2 which we had also factored. Overall, the Board of Directors proposed a final dividend of N12.00/share to bring total FY’15 dividend to N14.00/share (Vetiva estimate: N8.00).

Tough operating outlook
Coming into 2016, we were a little optimistic of an improvement in operating conditions and expected product distribution challenges to ease following the clearing of some subsidy backlogs and the introduction of price modulation for key product PMS.

However, product shortages have continued so far in the first three months of the year with likely impact on marketers’ throughput. We expect this scenario to affect performance, at least for the first half of the year before a pickup in H2.

We have revised our Coverage estimates to reflect the tighter supply environment. We have thus revised our FY’16 Revenue and PAT estimates for TOTAL down by 8% and 34% respectively and cut our target price to N145.93 (Previous: N161.86).

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