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Total Nigeria: Whistle Blowing on Solid First Quarter

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By ARM Securities

In keeping with the rave in town, we beam our equity strategy searchlight on a leading Oil Marketing Company (OMC), Total Nigeria Plc. (Total), which is scheduled to report 1st quarter earnings in the last week of April.

Despite its striking FY 16 earnings, which was almost four-fold higher YoY with EPS at N43.58, Total’s share price has declined 9.7% YTD (post result release: – 3.7%)—underperforming the broader NSEASI.

In our view, the weak appetite for the stock was underpinned by the company’s disappointing final dividend announcement of only N7.00 which brought total DPS to N17.00, with the implied pay-out ratio of 39% well behind its average of 84% over the last decade.

That said, the stock is typically prone to big moves after earnings releases and can easily gap up if the numbers are as strong as expected.

For full-year ended 2016, revenue grew 39.9% YoY to N290.9billion, largely reflecting a 38% YoY increase in petrol sales. The jump in PMS turnover reflects higher prices (+42% YoY to an average of N123/litre) which neutered volume weakness. Elsewhere, sales of lubricants climbed 53% YoY as the company raised lubes prices even as NGN depreciation at the parallel market pulled back importation of lubes to create scope for market share expansion for domestic players.

Consequently, gross profit was 94% higher relative to prior year with corresponding margin jumping to a decade high of 16.9% (+4.7pps YoY).

The foregoing combined with efficient cost control (OPEX: +1.3% YoY) to drive a four-fold YoY expansion in earnings.

Total reported its highest gross margin on record of 24.2% (+12.2pps QoQ) in Q4 16 in line with those of its close rival (Forte Oil Plc).

In our view, the upsurge reflects price increases in lubes and deregulated product segments (LPG, AGO, DPK) which more than offset weaker petrol sales.

Irrespective, N9 billion in other expenses mainly due to N7.4billion in foreign exchange loss1 moderated the impact of its record gross margin to leave EPS at N9.32 (+17.3% QoQ and +147.9% YoY). Barring the impact of the FX loss, Q4 16 EPS would have printed at N36.00 (FY 16: +489.4% YoY to N70.26).

For Q1 17, we expect petrol volumes to head further south owing to higher prices and supply constraints.

Specifically, we forecast a 10% QoQ decline in petrol volumes to 373million litres. That said, as with Q4 16, higher prices across petrol (67% YoY to N145/litre), diesel (60% YoY to N234.5/litre), kerosene (40% YoY to N311.56/litre), and lubricants (+18% average) as well as resilient volumes in these segments (excluding petrol) guide our Q1 17E sales of N75.7billion (+27% YoY, +7% QoQ).

Consequently, our gross margin expectation for the quarter is 20.2% (+5.3pps YoY, -3.9pps QoQ).

Further down, the flat movement in the interbank market (N305/$) and appreciation at the parallel market (+20% to N390/$2), compared to prior quarter, should dispel foreign exchange losses in the period.

To be clear, we now see scope for FX gains on the Trade creditors line—pegged to the parallel market.

This possibility notwithstanding, we take the cautious approach of discounting potential currency induced gains. Irrespective, we expect strong underlying performance over Q1 17, with an EPS estimate of N17.04 (83% QoQ and 104% YoY) leaving prospect for an interim dividend payment.

Over FY 17, despite expected higher average petrol pump price of N145/litre (2016 average: N123/litre) as well hike in lubes prices, weaker petrol volumes should moderate total sales growth to 8.5% YoY (to N315.6billion).

On cost, notwithstanding recent NGN appreciation at the parallel market which should ordinarily moderate input cost, our average crude oil price (22% YoY to $55/bbl.) and NGN forecasts (18% to N360/$) should leave COGS at elevated levels.

Consequently, gross margin should come in 20bps lower YoY at 16.7%. Furtherdown, amidst the still elevated payables, second order impact of weaker naira underpins our expectation for FX loss of N6.4bilion over 2017.

The foregoing should combine with higher net finance charges (+24% YoY to N717million), reflecting absence of payment of accrued interest on delayed subsidy, to drive our FY 17 EPS to N39.8 (-9% YoY) with total dividend at N19.88 (50% pay-out).

Total has had a good run over the last one year and currently trades at a P/E of 6.2x relative to 12.9x for peers. Net adjustments to our models drive our FVE 8% higher to N384.72, which implies a 43% upside from last closing price. We retain a BUY rating on the stock.

Source: www.armsecurities.com.ng.

All rights reserved. This publication or any portion thereof may not be reproduced or used in any manner whatsoever without the express written permission of ARM Securities Limited

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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Economy

Customs Street Depletes by N22bn as Investors Liquidate Financial, Energy Stocks

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financial stocks

By Dipo Olowookere

The first trading session of this week at Customs Street ended with a marginal 0.03 per cent loss on Monday following profit-taking in financial and energy sectors.

The counters closed lower during the session as investors re-caliberated their portfolios due to the instability in the global financial markets.

The All-Share Index (ASI) of the Nigerian Exchange (NGX) Limited was down yesterday by 33.72 points to 104,529.62 points from 104,563.34 points and the market capitalisation depleted by N22 billion to N65.685 trillion from N65.707 trillion.

Business Post reports that the banking index crumbled by 1.99 per cent, the insurance sector depreciated by 0.36 per cent, and the energy counter lost 0.19 per cent, while the consumer goods space improved by 0.08 per cent, with the industrial goods and commodity indices closing flat.

It was observed that despite the disappointing outcome, the market breadth index was positive after the bourse ended with 28 price gainers and 24 price losers, representing a strong investor sentiment.

International Energy Insurance lost 9.76 per cent to trade at N1.48, Consolidated Hallmark shed 8.33 per cent to N2.75, Japaul went down by 7.46 per cent to N1.86, Chams dropped 6.98 per cent to N2.00, and Neimeth eased by 6.94 per cent to N2.68.

Conversely, Abbey Mortgage Bank rose by 9.95 per cent to N6.74, UPDC gained 9.82 per cent to sell for N3.13, Guinea Insurance increased by 9.52 per cent to 69 Kobo, VFD Group jumped by 9.46 per cent to N96.00, and Sovereign Trust Insurance soared by 9.41 per cent to 93 Kobo.

Yesterday, a total of 428.2 million shares worth N10.5 billion exchanged hands in 14,583 deals versus the 380.0 million shares worth N10.1 billion traded in 10,791 deals last Friday, implying a rise in the trading volume, value, and number of deals by 12.68 per cent, 3.96 per cent and 35.14 per cent, respectively.

The activity chart was topped by Access Holdings with 56.0 million equities sold for N1.2 billion, Zenith Bank traded 55.4 million stocks valued at N2.8 billion, Fidelity Bank transacted 39.0 million shares worth N725.9 million, UBA exchanged 33.2 million equities valued at N1.0 billion, and GTCO traded 31.0 million stocks for N2.1 billion.

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Economy

Oil Market Rises on Tariff Exemptions, Boost in China’s Crude Imports

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crude oil market

By Adedapo Adesanya

The oil market was slightly up on Monday on the back of exemptions for some electronics from US tariffs and data showing a sharp rebound in China’s crude imports in March.

During the trading session, Brent crude futures improved by 12 cents or 0.2 per cent to $64.88 per barrel and the US West Texas Intermediate (WTI) crude futures grew by 3 cents to trade at $61.53 a barrel.

The President of the United States, Mr Donald Trump, last Friday granted exclusions from steep tariffs on smartphones, computers, and some other electronic goods imported largely from China.

It was the latest in a series of policy announcements that imposed tariffs and then walked them back, spurring uncertainty for investors and businesses.

President Trump later said on Sunday he would announce the tariff rate on imported semiconductors in the coming days.

For the Chinese imports, the exclusion of the tech products applies only to President Trump’s reciprocal tariffs, which climbed to 125 per cent this week as the prior 20 per cent duties on all Chinese imports that he said were related to the US fentanyl crisis remain in place.

China increased its tariffs on US imports to 125 per cent last Friday, hitting back against the American president’s decision to further raise duties on Chinese goods and increasing the stakes in a trade war that threatens to upend global supply chains.

These developments raise concerns that the trade war could weaken global economic growth and dent fuel demand.

China’s crude oil imports in March rebounded sharply from the previous two months and were up nearly 5 per cent from a year earlier boosted by Iranian oil and a rebound in Russian deliveries.

The Organisation of the Petroleum Exporting Countries (OPEC) said in a monthly report on Monday that global oil demand will rise by 1.3 million barrels per day in 2025, down by 150,000 barrels per day from last month’s forecast, citing trade tariffs among the reasons.

Top market analysts like Goldman Sachs and UBS have also cut their forecast.

Goldman Sachs expects Brent to average $63 and WTI to average $59 for the remainder of 2025, with Brent averaging $58 and WTI $55 in 2026 while UBS reduced its Brent forecasts by $12 a barrel to $68.

The US could stop Iranian oil exports as part of President Trump’s plan to pressure Iran over its nuclear programme.

However, Iran and the US held talks in Oman on Saturday and agreed to reconvene next week.

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Economy

Nigeria’s Oil Production Drops to 1.40mb/d in March

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libya oil production

By Adedapo Adesanya

Nigeria’s oil output decreased by 4.1 per cent to 1.40 million barrels per day in March from 1.46 million bpd in the previous month, according to the Organisation of the Petroleum Exporting Countries (OPEC).

This drop means Nigeria has now produced below its OPEC target for the second consecutive month and far below its 2.06 million targets contained in the 2025 national budget.

This decline could be attributed to attacks on pipelines in Rivers State that led to the declaration of state of emergency and the suspension of democracy in the oil-rich state by President Bola Tinubu.

Last month, Mr Tinubu announced the suspension of Governor Siminilayi Fubara and the State House of Assembly over political crisis in the state. This occurred after an oil facility in the state was attacked. He then appointed a retired military officer, Mr Ibokette Ibas as the sole administrator of Rivers State.

Despite the decline, Nigeria remains the largest oil producer in Africa, surpassing Algeria and Congo, which produce 909,000 barrels per day and 263,000 barrels per day, respectively.

However, according to data sourced from secondary sources, OPEC said Nigeria produced 1.51 million barrels per day in March as against 1.54 million barrels per day in February.

OPEC’s report also showed that crude production by the wider OPEC+ fell in March by 37,000 barrels per day to 41.02 million barrels per day due in part to reductions by Nigeria and Iraq.

“Total DoC crude oil production averaged 41.02 mb/d in March 2025, which is 37 tb/d lower, m-o-m,” OPEC said.

On April 12, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said the country’s oil production decreased to 1,400,783 barrels per day in March.

Although oil output dropped in March, NUPRC said the average crude oil production is 93 per cent of the 1.5 million barrels per day quota set for Nigeria by OPEC.

NUPRC adds condensates to its estimates, which are exempted by OPEC in its calculations.

On April 4, the OPEC and its allies decided to increase oil production by 411,000 barrels per day in May — amid declining oil prices.

OPEC also cut its 2025 global oil demand growth forecast on Monday for the first time since December, citing the impact of data received for the first quarter and trade tariffs announced by the United States.

OPEC forecasts that world oil demand would rise by 1.30 million barrels per day in 2025 and by 1.28 million barrels per day in 2026. Both forecasts are down 150,000 barrels per day from last month’s figures.

US President Donald Trump’s trade tariffs as well as a plan for higher output by OPEC+ have put downward pressure on oil prices this month and raised concern about economic growth.

In its monthly report report, OPEC lowered its world economic growth forecast this year to 3.0 per cent from 3.1 per cent and reduced next year’s to 3.1 per cent from 3.2 per cent.

Last month, OPEC said trade concerns would contribute to volatility but had kept forecasts steady, saying the global economy would adjust. However, that appears to have changed with recent developments.

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