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Vetiva Flash Note: Total Nigeria Plc Q1'2011 Result




Total Nigeria Plc (Total) released its Q1’11 result for the period ended March 31, 2011 today.
Please find below highlights of the result as released on the floor of the Nigerian Stock Exchange: 
Analyst Note
  • Again Volumes Decline, as Sales Fall Short of Expectations…
Reported figures show a 3% YoY decline in Sales, a continuation of the 2010 trend, reinforcing our view that most “Majors” have lost some market share as a result of improved product availability among “Independents” and the aggressive expansion of NNPC Retail (the downstream marketing subsidiary of the State Oil Company). Moreover, turnover came in 12% below our estimates (N40.9 billion vs. N46.4 billion).
  • … But Profits Match our Estimates
Reported Profit Before Tax (PBT) came in 48% below Q1’10 figure but matches our    estimate of N1.6 billion. Although not disclosed in the numbers as released on the floor of the exchange, we suspect that Q1’10 PBT included an Exceptional Item (EI) of about N1.5 billion booked from the sale of property at Abuja. Stripping Q1’10 numbers for the exceptional item, Q1’11 PBT comes in only 1% lower at c.N1.6 billion. Profit After Tax (PAT) however fell by a slightly wider margin of 5% when benchmarked against our estimates of N1.1 billion. The variation in reported PAT, vis a vis our estimate, is as a result of differences in tax rate (36% in Q1’11 vs. our 32% estimate).   
  •  Pre-EI Margins Up YoY, Held Steady QoQ
Considering the PBT before the exceptional item, we deduce that margins probably inched up 1pps YoY (from 3% to 4%) in Q1’11 and follows from Q4’10 trend, again buoyed by the reduction in payment cycles for products (which improved cash flows) with the implementation of the Sovereign Debt Note (SDN) programme.  
  •  Looking Ahead: No Surprises Expected, H1’11 to Follow Q1’11 Trend  
With no material changes expected in the operating environment in Q2’11, we expect Total’s H1’11 performance to mirror Q1’11 and estimate H1’11 top and bottom lines at N85 billion and N2.1 billion respectively (representing a relatively flat performance relative to H2’10). As such, we maintain our view that the shares of Total are richly priced as our DCF based target price of N193.38 suggests a downside of 4% to current market price of N201.50; thus, informing our REDUCE rating. Total now trades at 17.3x trailing earnings relative to sector average of 12.9x.

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