CardinalStone Research
Total Nigeria Plc (TOTAL: TP 129.39 – HOLD) announced a 9M’19 loss of N204.8 million to the investing public today. The company also recorded an after-tax loss for the second time in three quarters in Q3’19, which was largely driven by bloated operating expenses (+15.6% YoY) and heightened finance costs (+69.2% YoY)
Some concerns:
- We highlight the negative impact of sustained increases in OPEX on the company’s performance. For context, EBIT margin plunged by 3.68 ppts YoY to 2.6% in 9M’19 principally due to OPEX pressures. While the jump in OPEX was spread across most of TOTAL’s constituent expense items, it is pertinent to note the c.N2.1 billion attributed to technical assistance and management fee (vs. nil in 9M’18).
- We are a little concerned about the company’s working capital management that saw trade receivables increase by 11.1% to N63.8 billion in 9M’19 from H2’19 levels. The jump in trade receivables was largely due to an upsurge in advance given to suppliers ( +129.9% QoQ) and bridging claim due from the Petroleum Support Fund (+16.6% QoQ).
- In a similar fashion, finance expense grew by over 100.0% as the company continued to drawdown on expensive bank overdrafts. The consistent dependence on overdrafts may have stemmed from the company’s weak working capital position.
Some positives:
- Quarterly revenues were largely flat in Q3’19 (0.5% YoY). While there was a flattish performance in the fuels segment, the lubricant arm of the business managed a 3.5% YoY growth in sales in the review quarter.
- The aggressive rise in inventory build-up witnessed in H2’19 was slightly reversed as stocks declined by 16.9% QoQ in Q3’19. We believe this decline in inventory was due to increased lubricant sales.
