Post on 10-Dec-2021
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August 16, 2013
TOTAL NIGERIA PLC
EQUITY ‖ NIGERIA ‖ OIL & GAS
Investment Summary & Highlight
MorganCapital Research
African Frontier Market
LEAD ANALYST
Chuks Anyanwu ChuksA@morgancapitalgroup.com
+234-08066397836
SALES
Julcit Hwande sales@morgancapitalgroup.com
+234-8107596134 +234-1-2714713-4
REGULATORY COMPLIANCE
Taiwo Balogun compliance@morgancapitalgroup.com
MD/CEO
Ayoleke O Adu FCS, CFA ceo@morgancapitalgroup.com
Key Ratios & Statistics
Current Stock Price: N155.00
Fair Value: N197.79
Outlook: POSITIVE
Market Capitalization: $329.37B
Year End: December
Price-to-Earnings (PE)
2012Trailing: 11.26X
2013 Forecast: 10.25X
2014 Forecast: 8.52X
Earnings-per-Share (EPS)
Current: (FY 2012): N13.76
2013 Forecast: N15.11
2014 Forecast: N18.19
Dividend-per-Share: N11.00
Return-on-Equity: 41.32 %
Return-on-Asset: 6.14 %
Outstanding Shares (m’n) 340
Free Float: (m’n) 113(33.2%)
Year-to-Date: 28.55%
Latest Result H1 2013
Dollar ($) N160
H1 -2013 Result @ a glance
N (m’n) N (m’n) %
H1 -2013 H1 -2012
Gross Earnings 117,294 109,839 6.78
PBT 3,902 4,466 12.63
PAT 2,409 2,923 17.58
EPS 7.10 8.60 17.44
Stock Rating
BUY
Industry View
In-Line
TOTAL PLC: a diamond in the
rough?
H1 -2013: Revenue rose by 7%, while Net income
declined by 18% YoY.
Total Nigeria (‘’Total’’ or the “Company”) on Wednesday 31st
July 2013 released its unaudited H1-2013 result. Revenue rose
by 7% to N117.29billion ($733.08M) from N109.84billion
($686.50M) YoY but declined by 7.87% to N56.24billion
($351.53M) from N61.05billion ($381.55M) quarter on quarter
(Q1 -2013 - Q2 -2013). While net income declined by 17.58% to
N2.41billion ($15.05M) from N2.92billion ($18.27M) YoY but
improved by 10.39% to N1.26billion ($7.90M) from
N1.14.99billion ($7.15M) quarter on quarter. The Company
clearly performed better in Q2 -2013 despite the slowdown in
sales. Cost of sales declined by 9.23%, faster than the decline
in sales over the same period (7.87%) and together with the
10.7% decline in the distribution expenses in Q2 -2013,
accounts for the improvement in net income in the Q2 -2013
compared to Q1 -2013.
Gross profit improved by 20.56% to N15.56billion ($97.27M)
from N12.91billion ($80.68M) YoY and marginally by 1.60% to
N7.87billion ($49.02M) from N7.72billion ($48.25M) quarter on
quarter. Gross profit margin settled at 13.27%, up from 11.75%
YoY and 13.94% from 12.64% quarter on quarter.
Operating profit rose by 7.00% to N5.01billion ($31.33M) from
N4.68billion ($29.28M) YoY and 5.74% to N2.58billion
($16.10M) from N2.43billion ($15.23M) quarter on quarter.
Operating profit margin settled at 4.27% up from 4.26% YoY
and 4.54% from 3.99% quarter on quarter. The vastly slower
growth in operating profit year on year compared to the gross
profit growth is adduced to the 30% rise in administrative
expenses over the same period. The Company impressively
translated a quarter on quarter decline in revenue to an
improvement in operating profit quarter on quarter boosted by
a 10.7% reduction in distribution expenses. Net profit
consequently declined by 17.58% to N2.41billion ($15.05M)
from N2.92billion ($18.27M) YoY but improved by 10.39% to
N1.26billion ($7.90M) from N1.14billion ($7.15M) quarter on
quarter.
Bloomberg Ticker: TOTAL: NL
NSE Symbol: TOTAL
Listed on the Nigerian Stock Exchange
(NSE)
...leading the Global Investment Path to Africa TM
MorganCapital Research www.morgancapitalgroup.com Equity Research Nigeria
The Company continues to leverage on its over 500 retail outlets in
Nigeria to push sales in a very competitive and volume driven
market. The sector is price regulated by the Federal government
and has been in the eye of the storm with constant delays in
subsidy repayments and consequent dependence of oil marketers
on short term credit from lending institutions to fund importation
with resultant high finance charge obligations. The inability of
government to fully deregulate the downstream sector has
mitigated strong growth in the sector and remains a major
challenge for oil marketers in Nigeria.
Valuation shows that Total Nigeria is
undervalued.
The stock is currently trading at a 27.60% discount to our fair value
estimate of N197.79, with a 12month investment horizon. Our fair
value computation is based on our financial performance
expectation for FY 2013. We placed a positive outlook on the
stock because of the upside potential of the stock from current price
to our fair value estimate
Earnings Projection
Our FY 2013 revenue estimate for Total is N239.63billion ($1.50B)
which translates to a 10% improvement relative to FY 2012, while
our net income estimate is N5.14billion ($32.11M) and equates to a
10.0% improvement relative to FY 2012. This yields an EPS of
N15.11 and a forward P/E of 10.25X
We expect increased sales volume in PMS especially in the fourth
quarter because of the associated festivities which triggers higher
consumption volume of PMS. The Company is also well positioned
to capitalize on the benefits of full deregulation, when it does
happen, evidenced by over 500 retail outlets spread across the
Federation. The industry wide challenge of subsidy repayment
delays and consequent dependence of PMS marketers on high cost
bank funding to finance importation is a dampener as finance cost
rose by 219.18% YoY.
Overall, we expect an improved performance on a year on year
assessment for FY 2013 and FY 2014 and despite the many
challenges in the sector; we think our earnings expectation is
realizable.
2010 2011 2012
Sales -10% 8% 25%
PBT 18% 1% 21%
-10%
8%
25%
18%1%
21%
0%
50%
100%
150%
200%
250%
300%
350%
400%
-15%-10%
-5%0%5%
10%15%20%25%30%
SALES & PBT GROWTH
Sales
PBT
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Sales Finance Cost Admin Exps PBT
10.6%
49.6%
9.0% 7.0%
3 YEAR CAGR (2010-2012)
CAGR
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
ROE ROA
61.0%
10.0%
38.0%
6.0%
41.3%
6.1%
ROE & ROA
2010
2011
2012
ROE and ROA has experienced a seesaw effect
over the last three fiscal
Sales has grown consistently over the last three
fiscal years while PBT has experienced a seesaw
effect
On a 3year CAGR assessment, finance cost has grown
ahead of all other parameters we considered. The
impact of the subsidy delay is evident
MorganCapital Research www.morgancapitalgroup.com Equity Research Nigeria
Valuation Analysis
Our fair value for Total was calculated using the Dividend
Discount Model comprising our expected dividend estimate for
the company and a MorganCapital customized tweak to adjust for
the risk of investing in the Nigerian oil and gas sector. Our
Required Rate of Return (RROR) factors in a risk premium of 7%
and the yield for the most recently issued 20-Year FGN Bond was
applied as the risk free rate of return.
Our projected dividend of N12.00 for FY 2013 which amounts to a
79% dividend payout ratio is based on our earnings estimate for
FY 2013. We have reviewed our EPS and dividend expectation
down from N16.00 and N12.50 to reflect our concern for the sector
and its impact on bottom-line profitability going into the last two
quarters of fiscal year 2013.
Investment Conclusion
An undervalued stock based on our research, with focus on our FY
2013 estimates. The Company is a solid brand and despite the
sector wide challenges has managed to grow its revenue
consistently over the last three fiscal years. The Company has
also been consistent with its dividend payout and have paid
dividend in all of the last 5 fiscal years. The Company remains a
favorite for value investors like Pension Fund Administrators
and other institutional investors. For a value stock, the upside
potential is attractive at 27.6% from current price to our estimate
fair value.
Overall, Total is a very strong brand for value investors. We
retain our BUY recommendation in the short-medium term and
will re assess our position as new information becomes available.
.
0%
2%
4%
6%
8%
10%
12%
14%
GPM OPM PBTM
13%
4% 4%
13%
4% 3%
12%
4%3%
PROFITABILITY MARGINS
2010
2011
2012
Total’s debt to equity has experienced a seesaw
effect over the last four fiscal years, the effect of high
dependence on short term funding.
Profitability Margins over the past three fiscal years
have been pretty consistent.
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2009 2010 2011 2012
56.5%
57.4%
31.8%
128.8%
DEBT-EQUITY
MorganCapital Research www.morgancapitalgroup.com Equity Research Nigeria
Investment Risks To our Fair value
Slower/Higher than expected growth in revenue: This is a major factor that can impair our earnings estimates.
Although we have adjusted our earnings expectation based on our analysis, there is always an outside chance that
the Company either out performs or under performs our revenue estimates.
High cost of Fund: The company’s dependence on high cost bank credit to fund importation as a result of the delay
of the federal government to pay subsidy refund is a major risk factor and this was priced into our FY 2013 estimates.
If however the company is efficient in managing this situation and minimise the effect of finance charge on
profitability, then the company may have a better than expected net income and vice versa.
TAX TOTAL TOTAL T
2010 2011 2012 2013(F) 2014(F)
MARKET CAPITALIZATION (N'm) ($) 530 413 256 420 502
GROSS REVENUE (N'm) 160,604 173,949 217,843 239,630 256,404
PROFIT B/F TAX 5,783 5,859 7,098 6,836 8,974
TAX 1,812 2,045 2,427 1,696 2,789
PROFIT AFTER TAX 3,971 3,814 4,671 5,140 6,185
EARNINGS PER SHARE (EPS) 11.68 11.22 13.74 15.12 18.19
PRICE-EARNINGS RATIO 10.27 9.87 9.32 13.08 13.00
SHARE CAPITAL 169 169 169 169 169
OUSTANDING SHARES (M'n) 340 340 340 340 340
OWNERS' EQUITY 8,929 10,026 11,301 12,996 14,296
CASH DIVIDEND 8.00K 9.00K 11.00K 12.00K 13.00K
SCRIP DIVIDEND Nil NIL NIL NIL NIL
RELEASE DATE 06/04/11 28/03/12 05/04/13
AGM DATE 30/06/11 13/06/12 14/06/13
CLOSURE DATE 06/05/11 20/04/12 19/04/13
PAYMENT DATE 01/07/11 14/06/12 17/06/13
In our analysis, Fair value is our opinion of the actual fundamental worth of a stock, irrespective of what the market is willing to pay
for the stock.
A BUY rating from us in our opinion, prompts investors to purchase the stock guided by their risk appetite
A SELL rating from us in our opinion, prompts investors to exit the stock.
A HOLD rating from us in our opinion, prompts investors to desist from buying the stock if they do not already have the stock, and
not sell if they already have the stock.
MorganCapital Securities Ltd
The Pent Floor
3, Biaduo Street, Off Keffi Street, S/West Ikoyi.
P.O.Box 75691 Victoria Island, Lagos.
+234-1-2714713-4, www.morgancapitalgroup.com
MorganCapital Research www.morgancapitalgroup.com Equity Research Nigeria
DISCLOSURE
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report relates, and no part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations, views or
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have traded, as principal on the basis of the research analyst(s) views and report(s).
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