TM +234-8107596134 +234-1-2714713-4 Taiwo Balogun ...

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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 [email protected]

+234-08066397836

SALES

Julcit Hwande [email protected]

+234-8107596134 +234-1-2714713-4

REGULATORY COMPLIANCE

Taiwo Balogun [email protected]

MD/CEO

Ayoleke O Adu FCS, CFA [email protected]

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

mailto:[email protected]



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


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


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

http://www.morgancapitalgroup.com/


DISCLOSURE

Analyst Certification

Where applicable, the views expressed in this report accurately reflect the analysts' views about any and all of the investments or issuers to which the

report relates, and no part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations, views or

corporate finance transactions expressed in the report.

Conflict of Interest

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this document and may also perform or seek to perform investment banking services for those companies mentioned herein. Trading desks may trade, or

have traded, as principal on the basis of the research analyst(s) views and report(s).

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