Thursday, October 29, 2015 06:23PM / FBNQuest Research
Event: Total Nigeria (Total) reports Q3 2015 results
Implications: Downward revisions to consensus estimates likely
Positives: Gross margin expansion of 157bp y/y to 13%; finance charges declined 37% y/y to N532m.
Negatives: Sales declined 18% y/y; PBT and PAT both down 58% y/y and 94% y/y respectively
Today, Total reported Q3 2015 results which showed declines across all key P&L line items. While sales were down 18% y/y to N47.3bn, PBT and PAT both fell by 58% y/y and 94% y/y respectively. The decline in Q3 marks the fourth consecutive quarter that Total’s topline has contracted on a y/y basis.
In Q2, relatively lower petroleum product importation led to scarcity of products during that quarter. Although this scarcity has largely eased off, we believe that difficulties in evacuating products from Nigeria’s main port in Apapa, Lagos State, has hampered sales as well as product distribution.
The double-digit decline in sales more than offset any benefits coming from a 157bp y/y expansion in gross margin and a 37% y/y reduction in finance charges. These led to a 58% y/y fall in PBT. Operating expenses were up by around 5% y/y.
Sequentially, we observe a similar q/q trend as sales declined by 9% q/q while both PBT and PAT fell 89% q/q and 91% q/q respectively. Unlike Q2, there were no substantial subsidy reimbursements.
Compared with our estimates, while sales missed our N60.0bn forecast by 21%, PBT came in well behind our estimates. The negative surprise on the topline was the primary driver for the variance.
Consensus sales and PBT forecasts for 2015 are N226.9bn and N6.7bn respectively. As such, we expect downward adjustments to anaylsts’ estimates on the back of these numbers.
Going forward into Q4, we do not expect a significant change to the topline trend which the firm has delivered so far this year. The federal government’s position on petroleum product subsidies remain sacrosanct.
We expect a final policy decision to be taken by mid-2016 given the extensive work being undertaken on local refineries. As such, most downstream operators are likely to continue to remain cautious under this scenario.
This effectively suggests that the Nigerian National Petroleum Corporation (NNPC), which accounts for around 40% of the total gasoline market in Nigeria, is likely to remain the primary importer through H2 2015. We continue to monitor Total’s budding non-core businesses.
At current levels, on our published estimates, Total shares are trading on a 2015E P/E multiple of 11.1x for flattish EPS growth in 2016E. Year to date, Total shares have gained 5%, outperforming both the oil & gas index and NSE ASI by 15% and 20% respectively.
Total Nigeria Q3 2015 results: actual vs. FBN Capital Research estimates (N millions)