April 30, 2021/Cordros Report
Event: TOTAL published its Q1-21 unaudited results yesterday (29 April), reporting EPS of NGN8.75 (vs loss per share of NGN0.48 in Q1-20). On an adjusted basis, the company reported an EPS of NGN8.75 (vs Adj. Loss per Share of NGN0.53 in Q1-20).
Revenue for the period declined by 5.0% y/y. In our view, the reduced topline figure results from TOTAL’s inability to regain lost market share in petroleum products which impacted sales volumes negatively. Revenue from the Network (70.0% of revenue), General Trade (24.0% of revenue) and Aviation (6.0% of revenue) segments all declined uniformly by 5.1%. Analysing by product, revenue from petroleum products fell by 11.4% y/y in Q1-21, with its contribution to total revenue dwindling to 76.0% (Q1-20: 81.4%), while revenue from Lubricants and others increased by 22.6% y/y, with its contribution to revenue increasing to 24.0% (Q1-20: 18.6%). The growth in lube sales is a testament to TOTAL’s significant market share (2020FY: 50.1%) in the space and the aggressive marketing strategies the marketer took to consolidate its large hold on the sales volumes of the product.
On a q/q basis, revenue increased by 27.2%, as the pick-up in economic activity to near pandemic levels boosted sales in the quarter. Unsurprisingly, all TOTAL’s business segments – Network (+39.7%), General Trade (+33.9%) and Aviation (+33.9%) – recorded growth.
Gross margin (+618bps) came in higher, as it expanded to 17.2% (Q1-20: 11.0%), its highest Q1 gross margin. The growth in margin was due to a faster decline in cost of sales (-11.6% y/y) vis a vis the growth in revenue amid rising crude oil prices. We attribute the lower costs to (1) lower PMS price (Average Brent price: NGN145.39/litre in Q1-20 vs NGN167.67/litre in Q1-21), and (2) the derivative contracts TOTAL entered with its trading partners in the latter part of 2020 to hedge price risk.
Adj. EBITDA (+160.0% y/y) and adj. EBIT (+393.5% y/y) surged in the period, owing to the growth in gross margin. Consequently, adj. EBITDA and EBIT margins expanded by 589bps and 544bps to 9.3% and 6.7%, respectively.
Net finance costs fell by 86.8% y/y, following a 84.2% y/y decline in finance costs. We note that the company is still reaping the rewards of the debt restructuring programme implemented in Q4-20, underpinning the lower finance costs in Q1-21.
Overall, the company recorded an adj. PBT outturn of NGN4.35 billion in Q1-21 (vs adj Loss Before Tax of NGN153.05 million in Q1-20). Following a NGN1.38 billion tax expense, the company recorded adj. PAT of NGN2.97 billion (vs adj Loss After Tax of NGN179.28 million in Q1-20).
Comment: TOTAL Q1-21 result is impressive, as the company recorded a positive bottom line after suffering two consecutive first-quarter losses. We like that management’s omen of higher crude oil prices in 2021 and the hedging strategies it employed paid off as gross margin hit record levels. Notwithstanding, we highlight that it may be difficult for TOTAL to keep costs low in the ensuing quarters of the year, given the expectation of higher crude oil prices going forward. YTD, TOTAL is up +4.5%, compared to the Oil & Gas index (+19.6%), and the broader All-Share index (-2.0%). Our estimates are under review.
*Adj = Adjusted **Adjusted = removal of non-recurring/one-off items