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TOTAL NIGERIA PLC FY'20 - Earnings surge on the horizon

Total’s recently released unaudited FY’20 results showed that the company’s revenue fell 30% y/y to ₦204.2 billion (Vetiva estimate: ₦204.9 billion), a reflection of the pandemic-induced drag on fuel demand. Meanwhile, net income declined at a softer pace (2% y/y) to ₦2.2 billion (Vetiva estimate: ₦2.3 billion), as the launch of a deregulated market for Premium Motor Spirit (PMS) cushioned earnings in the second half

Following the implementation of softer social distancing measures in the second half, Total, like other oil marketers, recorded further recoveries in its fuel operations in Q4 as turnover from this business segment jumped 27% q/q to ₦40.7 billion, although still below the ₦58.0 billion reported in corresponding quarter of 2019. The lubricants business, on the other hand, saw its turnover fall 9% q/q to ₦11.8 billion – the second lowest after Q2 - amid stiff competition from rival downstream players. Overall, aggregate revenue for the quarter came in at ₦52.5 billion (Q4’19: ₦70.3 billion). Meanwhile, gross margin declined slightly q/q to 18% from 19% in Q3, although full year numbers revealed that PMS deregulation lifted gross margin for the year to 15% from 12% in 2019. That said, gross profit came in at ₦9.2 billion (Q3: ₦8.6 billion, Q4’19: ₦10.0 billion).

Going into 2021, we expect to see further improvements in earnings, stemming from anticipated recoveries in fuel demand as well as deregulation-driven higher margins. We however reiterate that fuel demand will remain below pre-pandemic levels through 2021, as business activities are yet to fully recover. More so, we believe the advent of remote working across several companies in the services industries would leave fuel demand shy of the levels attained in 2019. In light of this, we expect aggregate revenue to grow 36% y/y to ₦277.8 billion (2019: ₦292.2 billion). With gross margin expected to rise to 18% (2020: 15%), we see gross profit coming in at ₦47.8 billion (up 58% y/y). Although the company recently raised ₦15 billion from commercial paper (CP) issuance, we do not expect this to result in higher finance charges given the low yield (2%) on the CP. That said, we expect finance costs to moderate to ₦2.3 billion (2020: ₦2.9 billion), yielding a 4x growth in after-tax profit to ₦8.5 billion.