TOTAL NIGERIA PLC 9M'20 - A U-turn to profitability
Better margins, lower finance costs to drive 2020 earnings growth
We believe the positive performance witnessed in Q3 would be sustained in subsequent quarters, as the move by the government in early September to fully deregulate the downstream sector would bode well for oil marketers. On this basis, we expect gross margin to remain relatively higher than pre-pandemic levels. Furthermore, the ongoing balance sheet deleveraging is expected to result in further contractions in finance charges, thereby supporting earnings growth. Meanwhile, we are a bit worried about revenue performance in Q4, as the recent civil unrest in some cities might weaken anticipated recoveries in fuel demand. As such, we see Q4 turnover coming in at ₦53.2 billion, translating to a full year revenue of ₦204.9 billion (down 30% y/y). Our gross margin forecast of 15% for 2020 takes gross and net profits to ₦30.1 billion and ₦2.4 billion respectively. Altogether, our revised valuation of Total Nigeria Plc yields a 12-month target price of ₦174.11 (previous: ₦171.26; thus, we maintain our BUY rating.
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