Total’s poor run persists despite oil price rise


Oil prices have taken off with increasing cooperation between OrganiSation of the Petroleum Exporting Countries (OPEC) and Russia, but Downstream operator Total is yet to get its groove after slumps in the first and second quarters, leading to a tumbling stock price, something nearly unthinkable in July.

Total’s Nine months revenue grew less than one percent to N221.2 billion from N220.216 billion to headline a poor run mostly attributed to subsidy removal by analysts.

The oil company subsequently fell short by 43 per cent in pre-tax profits that sank to N9.68 billion from N17 billion.

The pull was felt also by net profit as it dropped 49 per cent to N5.96 billion from N11.63 billion.

Since August, the company stock price has taken a dive, falling to N225 Wednesday December 12 from a high of N270 in middle July, causing it to underperform the market.

While the stock returned a negative 20 per cent to date, the ASI returned 15 percent. The situation somewhat validates our August statement that, “Total Nigeria Plc remains one of the top buys for investors in the oil sector despite the company shares loosing traction in August mainly on account of dwindling profit and faltering investor confidence”.

The company’s half year results ending June were also not so inspiring, sending the first signals that the stock will falter deep into the financial year.

In that period, revenues were up by a marginal 5.2 per cent to N152.97 billion from N145.5 per cent to headline slow growth even as the economy is inching out of recession. That led to questions about the company’s ability to grow significantly in the near term.

It also left questions as to whether the company has attained maturity in its life cycle that may require restructuring to remain relevant. But the market knows better now that the effect of subsidy removal is sinking in.

Despite thinning revenues, the company allowed the Cost of Goods Sold (COGS) to spike 11.5 per cent to N136.65 billion from N122.57 billion, pushing down gross profit 28.7 per cent to N16.33 billion from N22.91 billion. Even if admin and other operating costs didn’t rise significantly, operating costs sank 38.2 per cent to N8.1 billion from N13 billion in the period.

The company had to deal with rising finance cost, which spiked by a whopping 273.5 per cent to N1.03 billion from N274 million.

This contributed to the fall of pre-tax profit to N7.31 billion from N12.94 billion. The fall had a pull effect on net profit, which dropped 48.4 per cent to N4.6 billion from N8.9 billion. Margins fell across board in response to the falling profit metrics; gross profit margin was down to 10.67 per cent from 15.75 percent while operating margin, which is an index of a company’s ability to manage operating, halved from 8.89 percent to 4.78 percent.

The downward spiral was also seen in falling pre-tax profit margin, which sank to three per cent from 6.14 per cent, also pushing down net profit margin to 5.3 per cent from 8.9 per cent.

Thinning revenue and dropping profits were not enough to change analysts’ opinions who had forecast that the company will outperform the market, according to a poll by the Financial Times.

In the first quarter when revenues spiked 34.8 per cent to N80.46 billion from N59.7 billion, net profits shrank 5.42 per cent to N2.67 billion from N2.82 billion.

Rising revenues were linked to higher prices as demand was weak in the period from a slow economy and high inflation.

Of that report, analysts from Proshare had said then that the company was likely to do better on account of Central Bank’s easing of forex regime.

“We expect the impact of the increased forex supply (hence higher product supply) to weigh on H2 2017 in particular”. That didn’t happen.

What also didn’t happen was our prognosis that falling inflation and the advent of growth were likely to set the company on a better footing.

Consumer prices dropped to 17.24 per cent year-on-year in April, easing slightly from a 17.26 per cent recorded in March.

The inflation rate fell for the third straight month to the lowest in nine months, led by a slowdown in prices of housing and utilities and transport, according to the National Bureau of Statistics (NBS).


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