Downstream Oil and Gas player Total Nigeria saw its biggest profit decline in at least five years, despite an asset disposal that returned gains near three billion, as revenue woes worsened.
Unaudited result of Total, which distributes and markets refined petroleum products and fuels, showed profit slumped by 69.6 percent year-on-year to N2.4bn in 2019 after revenue declined 5.6 percent, the biggest contraction in sales since a 13.5 decline in 2015.
Total’s underwhelming result comes despite a one-off asset disposal gain of N2.8bn in the year.
“Ex the disposal gain, TOTAL would have reported a c. N341.4mn loss,” analysts at Lagos-based CardinalStone said in a note to clients Wednesday.
Total’s profit came more than a percent higher than CardinalStone had expected. However, a 12-month target price for the oil firm, which traded flat at N107.00 per share in the day, was set for N96.55 a unit with a sell rating on the stock.
Total’s 2020 estimate PE is 21.0x relative to 8.3x for peers, an indication that market price is not supported by earnings capabilities hence the stock is overvalued.
Revenue of Total was dragged by a 7.39 percent year-on-year decline in the company’s main segment involving sales of petroleum products (82 percent of total revenue) while segment for Lubricants and other products (18 percent of total revenue) rose 4.1 percent year-on-year.
Analysts at CardinalStone say the revenue setback was a fallout of growing competition in the downstream sector.
“As noted in our 2020 outlook titled ‘Treading uncharted Waters’, TOTAL may have been less aggressive on the expansion of retail presence compared to peers such as MOBIL and FO,” the analysts said. “For 2020, mild resurgence in the fuels business, as well as sustained growth in lubricant sales, are likely to drive a recovery in revenue of 2 percent.”
Total’s cost of sale fell in the period by 5.9 percent year-on-year to N257.1bn, helping to limit gross profit decline to 2.8 percent.
With a top-line of N33.8bn, Total made N11.6 from every N100 sales in 2019 as gross profit compared to N11.3 per hundred naira sales the year before.
The company’s operating expenses jumped by 106.5 percent to N28.1bn while other income rose 279.5 percent to N4.6bn in the period.
Plunge in Petroleum Subsidy Fund (PSF) saw Net finance income fall by 83 percent while finance cost rose in the period to push net finance cost into a negative of N6.71bn compared to a previous positive net finance cost of N2.29bn in 2018.
Profit before tax also fell by nearly 70 percent to N3.7bn.
The profit margin for Total in 2019 stood at 0.8 percent compared to 2.6 percent in 2018 while earnings per share fell to N7.13 from N23.45.
