TOTAL NIGERIA PLC - Profits soar following Liberalization
TOTAL reported strong growth in H1’16 earnings following the liberalization of the downstream market. We recall that on 11 May, the Government announced that it is liberalising the market to address the persistent fuel shortages that had rocked the country in the past year. The new framework set petrol (PMS) prices at N145/litre against N87/litre in the corresponding period of 2015, an effective 67% increase in selling price for prime product PMS which makes up to 70% of sales for Downstream Majors. With this, TOTAL’s revenue jumped 30% y/y to N145 billion; Q2 alone raked in N86 billion (up 44% q/q). A breakdown of revenue shows increase across petroleum products (+29% y/y) but an even stronger growth in Lubes & Specialty products (up 35% y/y). We note that the growth in petroleum products only reflects half a quarter impact of the increase in PMS prices. Despite the growth, we think prices, and not petroleum product volumes, were the driver of revenue for the period.
H1’16 EPS at N26.31 has almost reached Consensus FY’16 estimate of N28.97 and is already above our N20.90 estimate. In line with our above view revenue estimate and significantly improved margins, we expect FY’16 to be a record year for earnings. Whilst we expect margins to retreat 200bps through 2020, our forecasts show increase in EPS estimate by an average 100% over the period. For FY’16 we estimate EPS of N49.50. Having announced an interim dividend of N3/share, we look forward to a final dividend of N35/share to bring total FY’16 dividend to N38/share, a 76% payout ratio and an attractive dividend yield of 19% based on 1 August close price. Following the significantly improved earnings outlook, we have raised our Target Price to N404.37 from N225.90 and re-emphasize our BUY rating on TOTAL.
TOTAL is one of the largest marketer and distributor of petroleum products in Nigeria. TOTAL offers various fuel products, including petrol, diesel, and kerosene. TOTAL operates 550 service stations, 5 LPG bottling plants, 3 lubricants blending plants; and 5 aviation storage facilities.
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