EUR 56.22 For Business Accounts Only

TOTAL NIGERIA PLC 9M'16 - Benefiting off liberalisation

• TOTAL’s earnings trajectory came in within expectations, with top and bottom lines up 38% and 320% y/y respectively; both just missed our estimates by 2% and 3% respectively. A breakdown of revenue shows Petroleum product (+37% y/y) and Lubes & others (+48% y/y) growth outpacing H1’16 records of 28% and 35% respectively. TOTAL continues to benefit off increased selling prices following the liberalization of the downstream market. However, Q3 standalone revenue (N74.7 billion) came in lower than Q2 level (N85.8 billion) – we think as a result of the seasonality effect as Q3 is historically the slowest quarter for petroleum product consumption due to rains. Also, we do not rule out the possible impact of the tight FX liquidity situation on product import volume. Following from Q3 performance, annualized EPS of N45.68 is already tracking well above Consensus estimate of N35.28 but slightly below Vetiva estimate (N49.33). We expect Consensus EPS estimate to be revised higher.
• Whilst we expect the festive December season to boost petroleum consumption, risk to our outlook comes from the FX situation that continues to pressure the Naira. Whilst 9M’16 top and bottom lines only just missed our previous estimates, we think the FX situation, amidst a fixed retail price, could continue to restrain margins for Majors. Hence, we cut our FY’16 EPS estimate to N46.44 (previous: N49.33) to track more in line with the 9M’16 annualized rate. A look at TOTAL’s cash flow statement shows healthy cash balance of N22 billion as at 30 September 2016, supported by N20 billion from operating activities (net). This underscores the significant reduction in bank overdrafts and trade finance loan on the balance sheet – a corresponding reduction in interest charges and likely increase in interest income should cushion bottom line in Q4.