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Published On: Mon, May 22nd, 2017

Is Total Nigeria All Hype And No Substance?

Kirk Leigh

There has been a lot of activity around the Total Nigeria stock lately, driving the stock price to N265 last Friday May 19. For many who entered the stock, it was to take advantage of a drop to reap big from a historically high flying stock. But the company behind the stock was not that outstanding in the first quarter.

Those who entered the stock in the last six months have got their fingers burnt as it delivered a negative one percent relative to the market that delivered some 10 percent in the same period, according to data gleaned from the Financial Times. It is the hope of investors that prices would rise to and above the November 2nd 2016 high of N332.50 after all the stock is trading at a earning multiples of 6.11 x, and gross yield of 2.64%, according to data compiled by Bloomberg.

Analysts say it would happen as investors hope. Bullish about the stock’s prospects, they prognosticate that the price could rise as high as N368.54 and outperforming the market.  According to the FT, which keeps tabs on analysts opinion, “as of May 12, 2017, the consensus forecast amongst 7 polled investment analysts covering Total Nigeria PLC advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on Mar 17, 2017. The previous consensus forecast advised investors to hold their position in Total Nigeria PLC.

“The 7 analysts offering 12 month price targets for Total Nigeria PLC have a median target of N368.54, with a high estimate of N387.09 and a low estimate of N225.00. The median estimate represents a 39.07% increase from the last price of N265.00.”

The company’s financials for first quarter may put the speed breaker on the high estimates. Even though revenues spiked 34.8 percent to N80.46 billion from N59.7 billion, net profits shrank 5.42 percent to N2.67 billion from N2.82 billion. Rising revenue may be linked to higher prices as demand was weak in the period from a slow economy and high inflation.

Analysts from Proshare say going forward, the company is likely to do better on account of Central Bank’s easing of forex regime. “We expect the impact of the increased fx supply (hence higher product supply) to weigh on H2 2017 in particular”, says Proshare.

Falling inflation and the advent of growth are likely to set the company on a better footing. Consumer prices dropped to 17.24 percent year-on-year in April, easing slightly from a 17.26 percent 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).

The company is likely to rein in operating costs going forward with the operation of its solar power solution to the seemingly intractable power problem. The company has been able to stash savings through this initiative, according to Albert Mabuyaku, Corporate Affairs Manager.

“Through our installations, we have established cost savings benefits and effectiveness in the use of solar energy in Nigeria coupled with its abundant solar resource”, Mabuyaku said.

Early signs that bottom line of the oil marketing company could be eroded in the quarter under review, was the marginal 1.2 percent rise in gross profit to N8.99 billion from N8.89 billion as a result of a sharp increase in cost of sales to N71.46 billion from N50.81 billion, a lacerating 40.6 percent rise.

The oil company did a  yeoman’s job of keeping operating costs within reasonable limits to improve operating profits in the period by 11.3 percent to N4.46 billion from N4 billion and also pushed up pre-tax profit 10.6 percent to N4.3 billion from N3.84 billion. This was not enough to depress operating margin, which dropped to 5.6 percent from 6.7 percent. It also had a deleterious effect on pre-tax margin, pushing it down to 5.3 percent from 6.4 percent.

Bottom line was given a bashing as a result of a 55 percent rise in taxation to N1.58 billion from N1.02 billion, leading to a 5.4 percent drop to N2.67 billion from N2.82 billion, suppressing net profit margin to 3.3 percent compared to 4.7 percent achieved earlier.

Year on year Total Nigeria PLC grew revenues 39.86% from N208.03bn to N290.95bn while net income improved 265.63% from 4.05bn to 14.80bn.

 

Culled from Independent Newspapers

 

 

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