Culled—Proshare

December 8, 2016/FBNQuest Research

Slight cuts to 2016-17E EPS forecasts; PT down -4%
In Q3 2016, Total Nigeria’s (Total) sales were up 58% y/y to N74.7bn while PAT grew faster. Similar to the trend observed for peers, key P&L lines declined q/q, driven by a -415bp q/q gross margin contraction. New stock of relatively more expensive inventory was the primary driver, following a gasoline price hike of c.50% in H1.

Additionally, Total posted record sales in Q2 as independent marketers struggled to retain market share due to fx supply constraints. Compared with our forecasts, while sales were ahead by 13%, earnings were behind by 27% because of negative surprises on both cogs and opex lines. As such, we have lowered our gross margin forecasts by around -50 bps on average and raised opex by c.4% over the next two years.

Overall, we have cut our EPS estimate by around 5% over the 2016-17E period. Our new price target of N210 is lower by a similar magnitude. In Q3, Total proposed an interim dividend of N7.00/share, following on from a N3.00 interim dividend declared post H1 2016 results.

Consequently, this aggregates to a total interim dividend of N10.00 in 2016. To put this into context, Total paid a total dividend of N11.00 in 2015. We forecast a total dividend payout of c.95% and a final DPS of N29.00 for 2016E. Strong earnings growth delivered in 9M 2016 and the series of interim dividends declared have sparked a resilient rally in Total shares.

Total shares are up 84% (vs. NSE ASI’s -7%) over the last six months. We believe this rally is overdone. At current levels, we see an implied downside potential of -31% and retain our Underperform rating on the stock. The shares are currently trading on a 2016E P/E multiple of 7.4x for EPS decline of -57% in 2017E.

Q3 2016 PBT and PAT both up significantly y/y
While Q3 2016 sales grew 58% y/y, PBT and PAT were both up 563% y/y and 651% y/y. Y/y growth was flattered by easy comparables. Sales were primarily driven by higher pricing for key petroleum products mainly from service stations (Retail), which were up by 70% y/y to N58bn.

Retail sales accounted for around 77% of the group’s topline, up from 70% in Q2. Sales for the General Trade segment were also up 45% to N57.8bn. Sequentially, sales, PBT and PAT all declined 13% y/y, 55% and 56% y/y respectively. Compared with our estimates, while sales beat by 13%, PBT was behind by 29% because of negative surprises on the gross margin and opex lines.