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TOTAL NIGERIA PLC - Elevated lubricants pricing propels earnings

Demand soar to pre-pandemic levels

Total Nigeria PLC reported a massive improvement in revenue in its recently released Q2’21 earnings results, as revenue grew to ₦84.6 billion, a 132% increase y/y and a 27% uptick q/q, surpassing our estimate by 25%. The gradual uptick in economic activities and the ease of restrictions witnessed, amid economic recovery from the pandemic, undoubtedly contributed to increased sales volumes which drove the sharp growth in revenue. Evaluating segemental line items, we believe that the rising prices in the lubricants space supported the 115% jump in sales to a record ₦21.3 billion. Similarly, fuel sales volumes continue to soar, reverting to pre-pandemic levels as revenue from petroleum products grew by 139% y/y and 25% q/q. However, relative to the preceding quarter, sales from its petroleum products advanced 25%.

 

Furthermore, gross margin for the quarter came in strong at 17% (Q2’20: 11%), largely supported by the surge in lubricants operations, which typically bear higher margins compared to the fuel business. For context, average gross margin from lubricants is almost five times the gross margin obtainable from fuel operations across the downstream sector. In light of this, the company’s gross profit grew 3x y/y to ₦14.0 billion. Also, Total recorded better operational efficiency during the quarter, as operating expense margin dropped to 9% from 17% a year ago, driving operating profit north to ₦8.0 billion vs the ₦1.6 billion loss it made in Q2’20, despite heightened inflationary pressures. Given the lower interest rates on the company’s borrowings, finance charges declined 20% y/y, taking net profit for the quarter to ₦5.1 billion. This brought H1’21 net profit to ₦8.1 billion, the highest figure ever attained in a half-year period. Beyond the income statement, the company made remarkable strides in its cash flow management, as net operating cash inflow improved to ₦14.8 billion as opposed to a net operating cash outflow of ₦8.8 billion, largely driven by extended payables days.