Event: TOTAL published its Q1-22 unaudited results yesterday (28 April), reporting EPS of NGN12.86 (Q1-21: NGN8.75), translating to a growth of 47.0% y/y. The EPS growth was driven mainly by solid revenue growth (+46.3% y/y) and moderation in net finance cost (-44.6% y/y).

Revenue grew by 46.3% y/y to NGN97.61 billion in Q1-22, reflecting TOTAL’s sustained dominance in the downstream oil & gas market. The outturn was driven by the impressive growth across TOTAL’s Lubricants & others (91.3% y/y) and Petroleum products (34.1% y/y) lines. Notably, revenue contribution from the Lubricants & others line increased to c. 31.0% (Q1-21: 24.0%)- its highest level on record – highlighting management’s strategy of maximizing its lubes sales. Across its business segments, revenue from the Network (+10.8% y/y; 53.0% of revenue), General Trade (+125.6% y/y; 37.0% of revenue) and Aviation (+168.3% y/y; 11.0% of revenue) segments all increased.

On a q/q basis, revenue declined marginally by 0.4% q/q, following marginal declines in the Network (-1.4% q/q) and General Trade (-1.4% q/q) segments, both of which masked the 8.5% q/q growth in the Aviation segment.

Gross margin (-238bps) compressed to 14.8% in Q1-22 (Q1-21: 17.2%) as cost of sales (+50.6% y/y) surged relative to the expansion in revenue (+46.3% y/y). We attribute the spike in cost of sales to the uptick in crude oil prices (Average Brent price: USD97.86/bbl in Q1-22 vs USD61.32/bbl in Q1-21).
 
Consequently, EBITDA (-60bps) and EBIT (-6bps) margins declined to 8.7% and 6.8%, respectively, further dragged by an 11.3% y/y increase in operating expenses.
 
Net finance cost declined by 44.6% y/y to NGN77.64 million (Q1-21: NGN140.08 million), following a surge in finance income to NGN684.00 million (Q1-21: NGN37.05 million). On the other hand, finance costs increased by 330.0% y/y to NGN761.65 million, driven by interests on other loans (Q1-22: NGN515.32 million | Q1-21: Nil).
 
Overall, PBT surged by 50.6% to NGN6.55 billion in Q1-22 (Q1-21: NGN4.35 billion). Notwithstanding a higher tax expense of NGN2.19 billion (vs NGN1.38 billion in Q1-21), PAT grew by 47.0% y/y to NGN4.37 billion (Q1-21: NGN2.97 billion).

Comment: TOTAL’s Q1-22 result is impressive, as the company maintained positive earnings amid a plethora of challenges in the business environment. Specifically, we like that the company significantly grew the revenue from the higher-margin lubricant segment, effectively reducing its reliance on petroleum products (particularly PMS) as the primary driver of its revenue. We expect TOTAL to maintain this momentum in 2022FY as it continues to consolidate on its market leadership status in the downstream oil and gas industry. Our estimates are under review.