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TOTAL NIGERIA PLC Q1'21 Earnings Release - Earnings beat expectations

On Thursday, Total Nigeria Plc released its Q1 results, which beat our estimates on both top line and bottom line. Notably, revenue for the three-month period came in at ₦66.7 billion, 8% ahead of our ₦61.7 billion expectation. The topline performance as well as improved margins drove net income for the quarter to ₦3.0 billion, outpacing our estimate of ₦2.4 billion. In light of the stellar performance in Q1, we have revised our projections for Total and value the company at a new 12-month target price of ₦177.81 (Previous: ₦176.20). Our BUY recommendation on the stock is maintained.

The last few months have seen price increases across the lubricants space, especially among notable brands in the industry. We believe this was what drove a 23% y/y and 36% q/q jump in Total’s lubricants sales to ₦16.0 billion, blowing away our ₦12.2 billion expectation. On the flipside, fuel sales came in at ₦50.7 billion (Vetiva estimate: ₦49.6 billion), indicating an 11% y/y drop – largely a reflection of weaker sales volumes when compared to last year. However, relative to the preceding quarter, fuel sales advanced 25% q/q, as sales volumes continue to gain lost grounds amidst softer measures on social interactions. Overall, aggregate revenue for the quarter came in at ₦66.7 billion (down 5% y/y).

Total’s Q1 performance was impressive by several metrics, even though margins from fuel operations were underwhelming due to recently imposed PMS price cap. While we see the possibility of Q1 run rate (17%) for gross margin being sustained in subsequent quarters, we are a bit worried about revenue performance, given fixed PMS pricing as well as recent insecurity concerns in some states, especially in the South Eastern region. As a result, we have lowered our estimate for fuel revenue to ₦208.1 billion (previous: ₦226.9 billion), while we raise our forecast for lubricants revenue to ₦66.5 billion (previous: ₦51.0 billion), amidst increased product pricing. With gross margin maintained at 17% for the full year, we see gross and operating profits rising to ₦47.2 billion (2020: ₦30.2 billion) and ₦16.1 billion (2020: ₦3.7 billion) respectively. Given the low yield environment, we expect net finance costs to come in at ₦1.4 billion (previous: ₦2.0 billion) in 2021, bringing after-tax earnings for the full year to ₦9.1 billion.