Monday, November 06, 2017 2:55PM /FBNQuest Research
Negligible Cut To EPS Forecasts Over The
2017-19E Period
Total Nigeria’s (Total) Q3 PBT declined
by -42% y/y to N2.4bn, driven by relatively weaker sales and higher petroleum
product costs. Although PBT was in line with our estimate we have cut our 2017E
EPS by -9% because Total’s performance was boosted by strong results on the
other income and interest income lines. While other income was driven by
subsidy reimbursements on fx differentials of N1.9bn in Q3, interest income was
propped up by maturing fx forward contracts of N933m.
Given that Total has no other maturing
derivative exposures and the unpredictability of reimbursements from the FG, we
have had to discount the impact of the other income line on this set of
results. As a result, we have cut our EPS estimate over the 2017-19E period by
around 3% on average. In 2018, we anticipate steeper competition within the
downstream sub-sector of oil & gas industry due to relatively better access
to fx for product importation.
For now, we do not anticipate significant
alterations to the FG’s product pricing template, especially as politics begins
to take front row in 2018. Our new price target of N231.0 is lower by c.2% and
implies a potential downside of -2.1% from current levels. Year-to-date, Total
shares are down 21%, underperforming the market by c.60%. We have retained our
Neutral rating on the stock. The shares are currently trading on a 2017E P/E
multiple of 10.5x for a -4% decline in EPS in 2018E.
Q3 2017 PBT & PAT down -42% y/y and
-50% y/y respectively
Q3 2017 results showed declines across
all key P&L line items. While sales of N68.3bn declined -9% y/y, PBT and
PAT of N2.4bn and N1.3bn both declined by -42% y/y and -50% y/y respectively.
These y/y declines are unsurprising given the strength of Total’s Q3 2016
performance.
The topline decline was driven by a
double-digit y/y fall in sales to N50.8bn at service stations. This, along with
a gross margin contraction of -726bp y/y, more than offset positives coming
through from a much improved other income line. Other income was buoyed by the
FG’s reimbursement of subsidy-related fx differentials and maturing fx forward
contracts.
Sequentially, the trend was similar to
the y/y ones, with declines across all key lines. While sales declined -6% q/q,
both PBT and PAT were down -23% q/q and -30% q/q respectively. Total proposed a
N3.00 interim dividend, ahead of our N2.00 estimate; it implies a yield of
around 1%.
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