A Review of the Nigerian Energy Industry

High financial charges still a challenge – Total

10 December 2014, Lagos – Come next week shareholders of Total Nigeria Plc will begin to receive the 200 kobo interim dividend per share declared by the board of the petroleum product marketing firm. Based on the nine months results ended September 30, 2014, directors of the company recommended the dividend in tradition of the company. According to the company, the dividend will be paid to shareholders whose names are on its register as at the close of business last Friday.

The interim dividend is good for shareholders as it will boost their liquidity. However, what may give the shareholders some worry is the fact that profit of the company declined by 18 per cent for the nine months from which the interim dividend is being paid. The ability of the company to pay higher dividend at the end of this year compared to 2013 is doubt given its performance so far. Total Nigeria ended the Q3 with earnings per share (EPS) of N7.80 compared with N9.50 in the corresponding period of 2014. This implies that the company must record an EPS of N7.91 in the last quarter of 2014 alone for it to post the N15.71 EPS recorded full year of 2013. One major factor affecting the ability of the company to grow its profit is high financing charges.

Corporate history The current Total Nigeria emerged from its merger with Elf Oil Nigeria Limited in 2001. The company was incorporated as a private company in 1956 to market petroleum products in Nigeria. It transformed into Total Nigeria Limited in 1967 and Total Nigeria Plc in 1978 after it went public in accordance with the Nigerian Enterprises Promotion Decree (1977).

The company’s mission statement is: “We are in business to ensure total customer satisfaction by the creation of quality products and services delivered with a strong commitment to safety and respect for the environment and the sustainable development of resources. This objective drives all our corporate actions and the mutual acknowledgement of them by our partners forms the basis for our business relationships. To sustain this objective, our commitment is to constantly strive to improve our productivity so as to build and sustain a work culture that is firmly rooted in professionalism, respect for employees, internal efficiency and dedicated service”

The company inaugurated its first filling station in Yaba Lagos in 1956 and has since expanded its business through a network of over 500 retail outlets and corporate customers and organisations that are served through five regions. Also, with the support of Air Total International Paris, Total Nigeria is well established as one of the major suppliers of aviation fuel to the aviation industry in Nigeria. Besides, in order to maintain and consolidate its unique position in the oil industry, the company established three lubricants blending plants in Delta State, Kaduna State and Lagos State. The company equally invested in the bottling of Liquefied Petroleum Gas (LPG).

Board and Shareholders Structure Total Nigeria is run by a board led by Mr. Momar Nguer as chairman. Mr. Alexis Vovk is managing director, while Mr. Wilfred Konde is executive director (finance and development). Other non-executive directors are Felix Majekodunmi, Ms. Tejiro Ibru; Mr. Denis Toulouse;Mr. Wole Adeyinka;Mr. Kanu Ukonne; Mr. Ahmed Sirajo and Mr. Mathieu Soulas.

Total Nigeria has a share capital of N169, 760,918 made up of 50 kobo ordinary shares authorised and fully paid up. Total S.A. Paris holds 45.24 per cent. Elf Acquitaine Paris holds 16.48 per cent while Enifor Limited holds 8.12 per cent while Nigerian shareholders hold the remaining 30.16 per cent.

Nine months financial results The nine months results of the Total Nigeria showed a revenue of N177.8 billion, showing a marginal increase of two per cent above the N174.331 billion in the corresponding period of 2013. Cost of sale grew by four per cent from N151 billion to N157 billion. However, distribution/administrative and other expenses declined by eight per cent from N16.961 billion to N15.656 billion. Total was able to generate N958 million from other sources of income, showing a growth of 55 per cent compared with N 617.983 million in 2014.

But there was a jump of 27 per cent in financial charges from N1.457 billion to N1.845 billion. As a result, profit before tax fell by 18 per cent from N5.147 billion to N4.204 billion. Total reduced tax by 18 per cent to N1.556 billion, from N1.887 billion. Despite the reduction in tax, profit after tax decreased by 19 per cent from N3.26 billion to N2.648 billion. EPS fell by same margin from N9.60 to N7.80.

Analysts Assessment Looking at the performance of the Total, analysts at FBN Capital Limited said Q3 earnings came in much weaker than expected primarily due to a negative surprise in net finance charges. As a result, they have cut their EPS forecasts over the 2014-15 estimate period by around 11 per cent.

” Our new price target of N176.7 is 22 per cent lower than our previous target because we have raised our risk free rate assumption by 100 basis points(bps) to 13 per cent to reflect the current interest rate environment. Total shares have outperformed the Nigerian Stock Exchange All-Share Index(ASI) index this year, declining about 4.7 per cent (ASI: -19.7 per cent), but have underperformed the oil & gas sector index by 27 per cent. The shares are trading on a 2014E P/E multiple of 13.7x for 14% EPS growth in 2015E. We retain our neutral rating on the stock,” they said.

According to them Q3 2014 PBT went down 37 per cent, adding Q3 2014 results showed that while sales were flattish , both PBT and PAT declined by 37 per cent and 45 per cent respectively.

“A gross margin contraction of 151bps to 11 per cent and a 190 per cent rise in interest charges led to the PBT decline. The spike in interest charges is the first time in six quarters that interest expenses have increased on a y/y basis. Sequentially, while sales moderately declined by three both PBT and PAT declined quite markedly. Compared with our estimates, although sales were broadly in line with our N59.9bn forecast, PBT and PAT missed by 46 per cent and 50 per cent respectively,” the analysts said.

Looking ahead, they said they believe subdued global crude oil prices are likely to offset the negative effects of the recent devaluation of the naira. According to them, crude oil, refining and freight costs account for around 75-80 per cent of total white product costs. “Going forward, we expect a combination of a partial/full deregulation of the downstream sector and relatively cheaper products to drive sales volumes in 2015E. However, our 2015E sales growth forecast of around 14 per cent is reflective of both our growth expectations and easy comparables. We expect sales to pick-up in Q4, driven by increased intra-state commuting during the festive season. Nonetheless, we forecast a 25 per cent decline in 2014E EPS,” the analysts noted.

Reducing high financial charges Going by the consistent increase in the financial charges of Total, it is imperative that the company reduces finance costs through injection of cheaper funds. According to analysts, injection of equity capital through eight public offering or rights issue, will reduce its finance cost and enhance its bottom-line.


– This Day

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