Total Nigeria Plc – Lower finance cost fails to change earnings direction in Q1’20

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CardinalStone Research
Total Nigeria Plc (TOTAL: NGSE) released its FY’19 audited results alongside its Q1’20 unaudited numbers. The FY’19 audited filing was largely in line with the earlier unaudited release in January – which revealed a 71.4% YoY moderation in EPS to N6.71/share. The firm consequently announced a dividend of N6.71/share (6.5% div. yield as at close price).
In the Q1’20 results, TOTAL reported a N 163.2 million loss after tax, weighed by the 9.3% YoY revenue decline during the period. Below are the key highlights from the Q1’20 numbers:

Highlights:

  • Q1’20 sales moderated by 9.3% YoY to N70.2 billion, owing to weakened sales from the Petroleum Products (-10.7% YoY) segment. Lubricants (-2.7% YoY) sales similarly printed marginally lower to N13.1 billion.
  • In our view, the increased retail expansion from competitors, combined with the activation of social distancing measures within the country due to the COVID-19 outbreak in March led to the drawback in sales. For context, sales to service stations and aviation customers fell by 9.7% YoY and 39.5% YoY respectively.
  • The corporate customer’s section, however, rose by 3.7% YoY as major companies continued normal operating hours till the President’s mandatory lockdown order at the end March of 2020
  • Gross profit margin improved by 50 bps to 11.0% during the first quarter, aided by the weakness in crude oil prices following the brief trade fallout between two of the biggest oil producers Saudi Arabia and Russia
  • While we note the improved production efficiency, this failed to filter into operating income due to the 1.7x surge in Technical assistance and Management fees paid to Total Raffinage Marketing. Consequently, operating margin trended lower to 1.3% from 1.8% in Q1’19
  • Positively, net interest expenses declined by 40.8% YoY to N1.1 billion, reflecting the lower yield environment and the company’s recent deleveraging drive. Total borrowings at the end of Q1’20 stood at N37.7 billion (vs N55.1 billion in Q1’19)
  • Operating cashflow printed at N3.3 billion at the end of Q1’20 compared to a negative N22.4 billion in Q1’19. The turnaround was mainly driven by stringent working capital management. Specifically, Q1’20 Working capital balance was supported by the N10.0 billion reduction in inventories
  • Overall, the company recorded a loss after tax of N163.2 million at end of Q1’20 ( Q1’19: -N474.1 million)

Total Nigeria Plc - Lower finance cost fails to change earnings direction in Q1'20 - Brand Spur

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