Q3’20 Earnings Preview: Total Nigeria – Deleveraging efforts shield earnings

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Following the consistent easing of social distancing measures in Q3, we see Q3 fuel revenue rebounding to #t54.7 billion (Q2’20: ét26.6 billion), although 5% lower y/y. Our expectation for Total Nigeria’s Q3 fuel revenue is also driven by the jump in PMS prices after the government affected the full deregulation of the commodity in early September.

For the lubricant business, we expect the improvement in demand to lift sales 22% q/q to ét12.1 billion in Q3. However, on a y/y basis, we see a 9% drop in lubricants revenue, as demand is yet to recover to pre-pandemic levels.

Q3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings

Furthermore, we expect Q3 gross margin to inch up to 13.3% (Q3’19: 11.8%), driven by improved cost dynamics between the government and the oil marketers. Similarly, we see operating margin increasing to 3.0% (Q3’19: 2.6%), bringing operating profit to f42.0 billion, a U-turn from an operating loss of f41.6 billion in Q2.

As the company continues to deleverage its balance sheet, we forecast a 64% y/y decline in finance expenses to f4789 million, resulting in a profit before tax of f41.3 billion. That said, we expect Q3 after-tax earnings to come in at f4969 million, a return to profitability after two consecutive quarters of losses.

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Q3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings
Source: Company Fillings, Vetiva Research

Vetiva Research

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Q3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings - Brand SpurQ3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings - Brand Spur

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Q3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings - Brand SpurQ3'20 Earnings Preview: Total Nigeria - Deleveraging efforts shield earnings - Brand Spur

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