Total Nigeria Plc Q2 16 - Harnessing the Dividend of Flexible Market Pricing

Proshare

Wednesday, August 03, 2016 8:47am /ARM Research

Earnings hit record peak as deregulation buoys margins
Our investment case for Total Nigeria Plc (Total) received another boost with the release of its H1 16 unaudited financials where earnings of N8.9 billion or EPS of N26.30 (+233% YoY) is more than double our estimate and even exceeds our FY 2016 EPS forecast of N24.80. Also, Q2 16 earnings which jumped four folds YoY to a record N6.0 billion (EPS: N18.00) is more than three times of our estimate.

Total’s strong Q2 16 earnings stemmed from a combination of robust sales of N85 billion (+60% YoY), tame rise in input costs and benign finance charges (-92% YoY). Pertinently, this outcome fits our prognosis delineated in our note “Flexible PMS pricing: a shot in the arm for petroleum marketers” released following the 67% hike in PMS price to N145/litre.

Unmatched performance guides upward revision to forecast  

In view of our optimistic outlook, we have revised our 2016 financial performance forecast for the company and now expect FY 2016 earnings estimate to be 42% higher at N 15.2 billion (EPS: N44.8).

Sanguine earnings prospect supports unprecedented valuation upside
Net adjustment to our models drive our FVE estimate 60% higher to N372.98 per share which implies a nearly 86% upside from current price. Furthermore, Total appears cheap on a relative basis, with current and 2016E earnings multiples of 6.2x and 4.5x at sizeable discounts to historical levels (13.6x) and peer average (12.3x).  We reiterate our BUY rating on the stock.

In addition to the potential for capital gains, we see scope for attractive dividend yield hinged on our FY 16 earnings expectation. Specifically, we expect a dividend payout of 65%, after adjusting historical payout for additional investments required to compete effectively in the deregulated environment. This implies doubling of final dividend to N25.30/share and 12.6% yield on current pricing.

Related News

1.       Total Nigeria Plc Records 65% YoY Sales Growth in Q2'16

2.      TOTAL Q1’16 Results – Gross Margin Expands to 14.9%; Upwards Revision to Consensus 2016 Estimates Expected

3.      TOTAL Declares N2.83 bn PAT in Q1 2016 Result,(SP:N147.00k)

4.      TOTAL: OPEX Reduction Lifts Q4’15 Earnings

5.      TOTAL: Sales Declines by 22% YoY in Q4’15; Stock Rated Neutral

6.      TOTAL Proposes N12 Final Dividend in 2015 Audited Result,(SP:N153.82k)

7.      TOTAL Records Decline across All Key P L Line Items in Q3 15 Results

8.     TOTAL Posts 19.47 decline in PAT as revenue down by 10.41 in Q3 15

9.      TOTAL Q2 2015 buoyed by other income line

10.  Total Nigeria rated NEUTRAL after Q2 2015 results by FBNC

 

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