Monday, August 01, 2016 11:32am/ FBNQuest Research
Event: Total Nigeria (Total) reports Q2 2016 results
Implications: Upward revision to consensus 2016 estimates expected
Positives: Q2 sales of N85.8bn up 65% y/y and 44% q/q respectively; PBT up 169% y/y to N9.1bn
Negatives: No obvious negatives
Late last week, Total Nigeria (Total) reported Q2 2016 results which showed that while sales grew 65% y/y, PBT and PAT were both up 169% y/y and 211% y/y. According to management statements, a breakdown by segments revealed that sales from service stations (Retail), which accounted for around 70% of group sales, were up by 32% y/y to N104.7bn.
Additionally, sales for the Aviation and Corporate Customer (referred to as General Trade) segments were also up 43.8% and 13.3% respectively to N23.8bn and N21.0bn respectively. Total’s gross margin expansion of 445bp y/y to 16.3% and a 75% y/y reduction in net finance charges led to the PBT growth of 302% y/y.
On a segmental basis, gross margin for the General Trade and Retail segments expanded by 710bp y/y and 350bp y/y to 20.4% and 16.2% respectively, offsetting a mild contraction in the Aviation business. We believe that benefits coming from Total’s fx supply agreement with Total Upstream, a related company, were realised yet again.
Given that the independent marketers struggled to source fx for imports during the period, we suspect that major marketers, especially firms with related exploration & production entities, have gained market share. The situation also likely provided Total with some level of pricing flexibility, especially within the corporate segment where gross margin expanded the most.
Other income declined by -88% y/y to N301m on the back of fx losses of –N134.9m. Opex declined -4% y/y. Sequentially, sales, PBT and PAT were all up 44% y/y, 137% and 116% y/y respectively. A gross margin expansion of +144bp q/q and -34% q/q decline in net finance charges led to improved profitability.
Compared with our estimates, while sales beat by 69%, PBT was ahead significantly. Although gross margin was in line with our 16.0% estimate, the sales growth was a major surprise.
On an annualised basis, while sales are tracking ahead of consensus by 26%, PBT is tracking significantly ahead of consensus’ N15.1bn estimate. As such, we expect upward revisions to consensus estimates for 2016E. Year to date, Total shares have appreciated 23.5%, outperforming the NSE ASI by 26%. We rate the stock Outperform.
Total Nigeria Q2 2016 results: actual vs. FBNQuest Research estimates (N millions)