TotalEnergies: Margins Depressed By Elevated Cost Pressures In Q3 2022

TotalEnergies Marketing Nigeria Plc in it’s nine months unaudited  financials on Friday, reported a 25.3% y/y decline in standalone EPS to NGN11.71 (Q3-21: NGN15.67), cascading to a 6.6% y/y decline in 9M-22 EPS to NGN36.83 (9M-21: NGN39.43).

The EPS decline is largely attributed to significant increases in the company’s costs (+49.5% y/y) and net finance costs (+505.1% y/y).

Nonetheless, the board proposed an interim dividend of NGN4.00/s, which implies a yield of 2.0% on the last closing price of NGN197.00 (October 27).

A review of the company’s financial position made available to the NGX Exchange for verification, showed that revenue grew by 41.0% y/y in Q3-22, following the stellar performances across the business’ three segments – Network (+29.6% y/y | 44.1% of revenue), General Trade (+38.6% y/y | 41.3% of revenue) and Aviation (+106.3% y/y | 14.6% of revenue).

The revenue growth is a result of the increase in fuel prices – PMS: +15.2% y/y; AGO: +209.5% y/y; and DPK: +106.7% y/y – in the period. Decomposing the product lines, revenue from petroleum products grew by 47.9% y/y (76.9% of revenue), while revenue from lubricants and other lines grew by 22.1% y/y (26.7% of revenue). On a q/q basis, revenue grew by 15.1% supported by the increases in its General Trade (+35.2% q/q) and Aviation (+30.7% q/q) business segments, despite the 0.7% q/q decline in the Network segment.

Gross margin contracted by 500bps to 11.6% in Q3-22 (Q3-21: 16.6%) due to a faster growth in cost of sales (+49.5% y/y) relative to revenue (+41.0% y/y). We attribute the higher cost of sales to the rally in crude oil prices (Average Brent price: USD97.70/bbl in Q3-22 vs USD73.23/bbl in Q3-21). Similarly, 9M-22 gross margin declined by 351bps to 13.2%.

Simultaneously, EBITDA (-380bps) and EBIT (-337bps) margins settled at 7.1% (Q3-21: 10.9%) and 5.6% (Q3-21: 8.9%), respectively, amid an 11.2% y/y increase in operating expenses.

Net finance cost surged significantly by 505.1% y/y to NGN1.09 billion (Q3-21: NGN180.73 million), following a whopping 226.2% y/y rise in finance cost, amid a 25.9% y/y increase in finance income. Notably, the outturn of the higher finance costs reflects the surge in interest on import loans (NGN1.95 billion | Q3-21: NGN33.28 million) and interest on other loans (NGN1.31 billion | Q3-21: NGN911.52 million).

Overall, profit before tax settled at NGN6.05 billion in the period translating to a 23.8% y/y decline from the NGN7.94 billion recorded in Q3-21. Tax expenses settled at NGN2.07 billion, while profit after tax printed NGN3.98 billion reflecting a 23.3% y/y decline from the NGN5.32 billion recorded in Q3-21.

According to Cordros Securities, TOTAL’s result highlights the significant headwinds in the downstream oil and gas space and the overall operating landscape which have remained inhibiting factors to petroleum marketers. “We expect TOTAL to see out the year with the resilient momentum the company has exhibited so far in 2022, with festive induced travelling in Q4 adding an extra layer of support to sales. However, we maintain our view that the volatility of crude oil prices will remain a strong headwind to the company’s operations.