Total Nigeria Plc FY'19 - Earnings Weakness Subsists Despite Asset Disposal Gain

Wednesday, January 29, 2020 / 07:30 PM / CardinalStone Research / Header Image Credit: Mineria-pa

Total Nigeria Plc (TOTAL) released a FY'19 unaudited result that revealed a 69.6% YoY plunge in profit after tax to N2.4 billion despite a one-off asset disposal gain of N2.8 billion. Ex the disposal gain, TOTAL would have reported a c. N341.4 million loss (FY'19E: PAT of N184.9 million) in its unaudited FY'19 numbers. 

Falling petroleum products revenue continues to offset gains in lubricant

In line with the pattern in the prior three reported quarters, a 7.4% YoY decline in petroleum products (fuels') revenue masked growth in lubricant sales (+4.1% YoY) in FY'19. This translated to a 5.6% YoY contraction in revenue to N290.9 billion (2.9% shy of our forecast). We view the revenue setback as a fallout of growing competition in the downstream sector. As noted in our FY'2020 outlook titled 'Treading uncharted Waters', TOTAL may have been less aggressive on the expansion of retail presence compared to peers such as MOBIL and FO. For FY'20E, mild resurgence in the fuels business and sustained growth in lubricant sales are likely to drive a recovery in revenue (+2.0% YoY).  

PAT weakness defies one-off gain

The company managed to turnaround its 9M'19 loss position of N204.8 million by carrying out an asset disposal in Q4'19[1]. Reflecting the associated N2.7 billion disposal gain, TOTAL reported Q4'19 and FY'19 PAT of N2.6 billion (over 8 folds YoY) and N2.4 billion respectively. For FY'20, we expect earnings to decline by 28.6% to N1.7 billion despite opportunities for cheaper borrowings opened up by yield moderation. For us, earnings decline is likely to stem from revenue and operating expense pressures, with the latter likely to mirror expected increase in inflation.

Valuation

The stock is trading on a FY'20E PE of 21.0x relative to 8.3x for peers. We have a 12-month TP of N96.55 and a SELL recommendation on the stock. 

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