August 10, 2020
by FBNQuest Research
PT of N97.0 down by around -17%
Unsurprisingly, Total Nigeria’s (Total) Q2 2020 performance was subdued due to movement restrictions in key states across the country. While this was an obvious drag on performance, growing competition from other major marketers provides a sterner test to the firm’s earnings outlook and industry position over the medium term. Total’s Q2 sales declined -50% y/y to N36.5bn, driven by softer sales across all segments. As expected, aviation fuel sales were down the most (-83% y/y) following the halting of both domestic and foreign public passenger flights. Total’s Q2 loss after tax of -N374m compares with our forecast of -N240m. As such, we have made negligible changes to our 2020E estimates.
Looking ahead, at the moment, it appears that the federal government’s resolve to maintain the recently introduced price modulation regime for gasoline is firm – a shift from the inhibitive price ceiling regime. This is good news for the industry, and in our view, the major petroleum marketers, in particular. We therefore expect competition to intensify going forward. However, given this scenario, we expect Total’s dominance in key products such as gasoline (petrol) and diesel (AGO) to gradually erode.
Our new price target of N97.0 is down by around 17% because we have cut our 2021-22E earnings estimates by around -7% and have lowered our long term sales forecast by 100bps to 2%. At current levels, our price target represents a potential upside of 23%. Although the stock has sold off -19% over the last month, we do not yet anticipate a reversal in negative sentiments. As such, we maintain our Neutral rating on the stock. Year-to-date, Total shares have shed â€“28.7% vs. the NSE ASI’s -7% performance.
Total posted a Q2 2020 pre-tax loss of N387m
In Q2, sales of N36.5bn declined -50% y/y and -48% q/q respectively. Performance across all segments worsened as a result of imposed movement restrictions during the quarter. Retail, wholesale and aviation sales all declined -52% y/y, -54% y/y and 83% y/y to N20.5bn, N4.9bn and N1.1bn respectively. The firm posted loss before and after taxes of -N387m and -N374m compared with PBT and PAT of N620m and N604m in Q2 2019 respectively.
On a q/q basis, the losses widened. H1 2020 sales of N106.7bn declined -29% y/y; the firm posted losses before and after taxes of -N524m and -N537m vs -N418m and -N474m in H1 2019 respectively. Total’s loss after taxes of -N374m compares with our -N240m estimate.