TOTAL Q4 2019 and Q1 2020 Results Review: Economic Lockdown Weighs Heavily on EPS Outlook


Tuesday, May 19, 2020 / 3:17 PM / By FBNQuest Research / Header Image Credit: Independent Newspapers


-34% cut to our 2020-22E EPS estimates

Total Nigeria (Total) reported a Q1 2020 loss after tax of -N163m compared with our N517m forecast. Although an anticipated reduction in net finance charges (down -40% y/y) materialised, the federal government's preventive actions against the covid-19 pandemic, i.e. the economic lockdown in Lagos, Abuja and the halting of local and foreign travel in March, weighed on performance during the quarter.


In Q1, petroleum products sales from retail outlets declined by -10% y/y to N40.7bn while aviation sales declined by around -40% y/y to N4.2bn. Product sales to commercial clients were flattish y/y during the period. We do not anticipate the resumption of commercial flights in Q2 which would weigh on sales during the period but see a gradual resumption of local travel in H2. We forecast sales declines of -80% y/y and -37% y/y to c. N1.3bn and N16.6bn for the aviation segment in Q2 and FY 2020E respectively. Although the lockdown in Abuja and Lagos is now partially relaxed, we expect petroleum demand to only recover gradually to normal levels deep into H2. Of course, this assumes a rebound in viral infections is mild and economic activities are allowed to continue.


We forecast sales and EPS declines of -6% and -70% respectively in 2020E. Our y/y sales forecast is driven by both relatively lower petroleum products demand and a double-digit decline in prices year-to-date. Given our near-term pessimistic outlook, we have cut our earnings forecast over the 2020-22E period by around -34%. Our new price target of N117.0 is down by around 38% and implies a potential upside of 14% at current levels. As such, we downgrade our recommendation on the stock to Neutral from Outperform. Year-to-date, Total shares have shed -7.3%, outperforming the NSE ASI by around 3%.


Total posted a Q1 2020 pre-tax loss of N137m

In Q1, sales of N70.2bn were down -9% y/y on the back of relatively lower sales from the retail service stations (down -9% y/y to N49.2bn) and aviation (down -40% y/y to N4.2bn) segments. The topline decline and a 6% y/y rise in operating expenses led to a loss before tax of N137m and loss after tax of -N163m respectively.


In Q4 2019, although sales also declined, -13% y/y to N70.3bn, PBT grew significantly by around +383% y/y to N3.2bn primarily because of a gain of c.N2.0bn from the disposal of assets during the period. Relatively lower finance charges of N893m also helped but to a lesser extent. Total also announced a final dividend of N6.71 which works out to a yield of c.6.5% at current levels.


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