Wednesday, April 27, 2016 1:57PM/ FBNQuest Research
Event: Total Nigeria reports Q1 2016 results
Implications: Upward revisions to consensus 2016 estimates expected
Positives: Q1 gross margin expanded by around 400bp y/y to 14.9%; PBT up significantly (+302%q/q); net finance charges declined -42% y/y
Negatives: No obvious negatives
Late yesterday, Total Nigeria (Total) reported Q1 2016 results which showed that while sales were flattish y/y, PBT and PAT were both up significantly y/y. According to management statements, a breakdown by segment reveal that sales from service stations (Retail) were slightly up by 2% y/y while declining for both the corporate customer (referred to as General Trade) and Aviation segments by around 7% y/y.
A gross margin expansion of 398bp y/y to 14.9%, a slight (-4% y/y) reduction in opex, a 242% y/y rise in other income and a -42% y/y decline in net finance charges all led to the PBT growth of 302% y/y. During the first quarter, we suspect that benefits coming from Total’s fx supply agreement with Total Upstream, a related company, were realised.
Given that the independent marketers’ struggle to source fx for imports persist, we suspect that major marketers, especially firms with related exploration & production entities, may have gained market share. The situation has provided Total with some level of pricing flexibility, especially within the corporate segment where gross margin expanded by around +1400bp y/y to 27%.
Gross margins for the Aviation and Retail segments expanded by +507bp y/y and +159bp y/y to 8% and 13% respectively. We expect Total to remain a beneficiary of the current fx scarcity, so long as it persists.
Other income was up 242% y/y to N305m driven mainly by fx gains of N42.7m recorded during the quarter vs. fx losses of –N203.1m in the corresponding quarter of 2015. Opex declined -4% y/y. We note that opex excludes accruals relating to technical assistance and cost sharing contracts with related entities, Total Oute Mer (TOM) and Total Raffinage Marketing (TRM) respectively, as the firm awaits a decision by NOTAP.
In previous years, these agreements with TOM and TRM were expected to be registered by NOTAP and on that basis an accrual was recorded in the financial statements. However, as at 31 December 2015, NOTAP had still not registered the agreements. Total is yet to provide an update.
Sequentially, sales, PBT and PAT were all up 23% y/y, 55% and 48% y/y respectively. A gross margin expansion of +227bp q/q and -75% q/q decline in net finance charges offset a 52% q/q rise in opex to lead to improved profitability.
On an annualised basis, Total’s sales and PBT are tracking ahead of consensus estimates of N225.2bn and N5.7bn respectively. As such, we expect upward revisions to consensus estimates for 2016E. At current levels, on our published estimates, Total shares are trading on a 2016E P/E multiple of 16.3x for an EPS growth of 10% in 2017E. Year to date, Total shares are flattish, outperforming the NSE ASI by 13.3%. We rate the stock Neutral.
Our estimates are under review.
Total Nigeria Q1 2016 results: actual vs. FBNQuest Research estimates (N millions)