TotalEnergies Marketing Nigeria Plc will reward shareholders with dividend payout for 2021 financial year after reporting bumper profit, thanks to resumption of full economic activities that enabled the marketer to push out substantial white product and lubricant volumes.
Analysts say the company has defiled the laws of gravity as it surmounted the foreign exchange illiquidity that elicited the Nigeria National Corporation (NNPC) to become the sole importer of the petroleum products.
TotalEnergies will pay N1.35 billion in dividend to shareholders, which is a 34.46 percent increase from 2020’s N2.06 billion. It has a dividend cover of 12.32 times, which means it has a conservative policy, typical of a company that sets eyes on expansion plans.
Its bottom-line growth broke the scale as net income surged by 711.12 percent to N16.72 billion in December 2021 from N2.06 billion as at December 2020.
Operating profit followed the same growth trajectory as it surged by 634.54 percent to N25.93 billion from N3.53 billion the previous year.
Improved earnings and cash flow generation means the downstream oil and gas giant will continue to meet financial obligations and pay dividends.
It will continue to improve its sales-mix and margins as it has plans to further expand capacity (2019:76kT) in the higher-margin lubricant segment where it is the market leader.
The company has put inventory and price risk management at the core of its strategy.
“In our view, this will be highly critical in optimising margins and working capital going forward and rightly position TOTAL for the eventual deregulation of PMS prices,” analysts at Cordros Research
Analysts at Codros say TOTAL can leverage its relationship with its parent company to access its global refinery business to ease product sourcing.
“Amidst significant forex illiquidity issues in Nigeria, TOTAL has also, in the past, looked to its upstream sister company (Total E&P Nigeria Limited) in Nigeria for its USD financing needs,” said the analysts.
TOTAL is in an advantageous position to pay interest on outstanding debt and it is not susceptible to financial risk because it has reduced debt in its capital structure.
It has an interest coverage ratio of 14.63 times, which simply means operating profit covers interest expense 14 times, according to calculations by MoneyCentral.
Staying above water with interest payments is a critical and ongoing concern for any company. This is because a lower ratio (less than 1.50) indicates a company is burdened by debt expenses and the less capital it has to use in other ways.
Debt to equity ratio reduced to 36.14 percent in December 2021 from 115.85 percent the previous year, according to MoneyCentral calculations.
Total debt as per balance sheet reduced by 54 percent to N15 billion in December 2021 from N32.61 billion as at December 2020.
A low debt-to-equity ratio indicates a lower amount of financing by debt via lenders, versus funding through equity via shareholders. A higher ratio indicates that the company is getting more of its financing by borrowing money, which subjects the company to potential risk if debt levels are too high.
With improved leverage, strong margins growth, and solid balance-sheet, TOTAL is sure to be a hot cake and little wonder analysts are placing Buy ratings on its stock.