Total Nigeria Plc earnings have surged back to pre-pandemic levels as the relaxation of lockdown measures by the government kick-started the economy.
For the first six months through June 2021, the largest downstream oil player by market capitalization posted net income of N8.06 billion from a loss position of N53.18 million the previous year.
A rigorous trend analysis by MoneyCentral shows the growth at the bottom line (profit) is the highest in 4 years, very close to surpassing 2017’s N8.93 billion.
As a result of strong growth in revenue, Earning Before Interest Taxation Amortization and Depreciation (EBITDA) margin increased to 10.50 percent in June 2021 from 2.20 percent the previous year.
Net profit margins moved to 5.33 percent in the period under review, the highest in four years.
It efficiently uses its resources to produce and sell products as gross profit margins increased to 16.85 percent as at June 2021, the highest in six years.
It is worth noting that Total Nigeria and peer rivals were hard hit by the economic lockdown by the government to curb the spread of the coronavirus pandemic that undermined energy prices as airlines were grounded to a halt.
The gradual reopening of international flights and lifting the sit at home order led to a rebound in crude oil price that helped the country exit the recession in the fourth quarter of 2020.
Nigeria’s economy grew by 0.51 percent year on year (y/y) in the first quarter (Q1-21), higher than 0.11 percent recorded in the first quarter of (Q4) 20.
Total Nigeria’s revenue has been largely driven by the sale of petroleum products.
Sales were up 41.82 percent to N151.33 billion in June 2021 from N106.70 billion in June 2020.
Revenue from petroleum products (the segment contributes 75.44 percent to total sales) grew by 36.13 percent to N114.04 billion as at June 2021.
TOTAL currently leads the Nigerian downstream sub-sector in market share across the various product segments. According to MOMAN market share data, as of H1-20, it had the largest share across AGO (40.9%) and Lubricants (53.0%), and second-largest market share for PMS (20.0%) and ATK (25.1%).
Interestingly, the proportion of debt in the capital structure is high compared to some five years ago, as TOTAL racked up more debt through bank overdrafts to cover working capital pressures.
The high debt level is understandable since the downstream oil business is capital intensive.
Also, the government owns operators in the subsidy arrears that undermines cash flow and makes it practically to service interest payment on money borrowed from the banks.
Debit to equity ratio stood at 101.35 percent in the period under review, from 111.85 percent in 2020, 200.93 percent in 2019, and 31.37 percent in 2017, data gathered by MoneyCentral shows.
The Debt to Equity ratio (also called the “debt-equity ratio”, “risk ratio”, or “gearing”), is a leverage ratio that calculates the weight of total debt and financial liabilities against total shareholders’ equity.
Total Nigeria’s operating income can cover interest expenses as it has interest coverage ratio of 12.85 times, which means operating income can cover finance cost 14.85 times.
Its net cash flow from operating activities surged by 108.41 percent to N25 billion, which means it has the financial ammunitions to pay dividend, meet both long- and short-term obligations, and fund future expansion plans.
The downstream player has been consistently paid dividends since 2006, with a dividend payout of 82.2% on average over the last 14-years, according to data from Cordros Capital.
“We expect this to continue going forward, given our view on improved earnings and cash flow generation,” said analysts at Cordros Capital.
The board of directors have approved an interim dividend of ₦4.00 for 2021, and that translates to a payout ratio of 16.74 percent.
While Total Nigeria is delivering higher returns to its owners, there remains other challenges to be surmounted. For instance, it would have made more money if the Nigerian National Petroleum Corporation (NNPC) was not the sole importer of refined products.
However, with the coming on stream of Dangote Refinery next year, operators in the industry will be less susceptible to foreign currency risk that has been stifling growth.
Also, the passage of the long-awaited Petroleum Industry Bill (PIB) by the National Assembly will accelerate the liberalization of the downstream industry, attract the desired foreign direct investment, and unlock potentials in the economy.
“Considering that NNPC operates a “cash and carry” model in its sale of products to the marketers, there is an added layer of pressure on the downstream companies, as they may have to incur debt (or more debt) to facilitate their transactions with the NNPC,” said the analysts.