Focus for the week: TOTAL NIGERIA PLC 9M’24 Earnings Release: Higher pricing drives turnover growth

Higher pricing drives turnover growth

In the third quarter of the year, TOTAL’s revenue surged 78% y/y to ₦263 billion, driven by a 137% y/y increase in petroleum sales, amid higher pricings. Additionally, sales from the lubricants segment recorded a 65% increase y/y. However, despite the strong growth in topline, the company recorded lower gross margins in the quarter, given pressures on cost of sales (+85% y/y). Consequently, gross margins in the period fell to 11% (Q3’23: 14%). For its 9’M results, the company recorded an 88% growth in topline, driven by a 137% growth in fuel turnover, however, mirroring its Q3 performance, gross margins dipped to 12% (9M’23: 13%), given lower margins recorded in Q2 and Q3.

Operating margins get a boost from growth other income

On the operational end, the company recorded a 46% y/y growth in OPEX, primarily driven by a 185% y/y increase in SG&A expenses to ₦11.5 billion (9M’23: ₦4 billion). However, a write-back of provisions totaling ₦12 billion resulted in a 416% increase in other income, reaching ₦16.5 billion (9M’23: ₦3.2 billion). As a result of this adjustment, TOTAL’s EBIT margin improved to 7%, up from 5% in the same period last year. On the financing end, interest expenses surged 2X, given higher interest rates, amid increased borrowings (+31% y/y). Nevertheless, the company reported a profit after tax of ₦6.8 billion in Q3, up 237% y/y.

TP revised upwards

We expect the positive momentum seen in topline to carry on into the last quarter of the year, bolstered by higher fuel turnover, amid improved pricing dynamics. We see FY’24 turnover reaching ₦1.1 trillion (Previous: ₦944 billion). However, we anticipate sustained cost pressures, thus our expectation for gross margins prints at 12% (previous: 13%). All in, we except TOTAL to pull in a PAT of ₦39 billion (previous: ₦29 billion).

What shaped the past week? 

Equities: In the week, the local equity market again witnessed mixed sectoral performances, but the bulls triumphed this week, with more sectors closing in the green. At the end of the week, the NGX ASI had gained 0.50% w/w mostly driven by Friday’s performance. The Banking (+2.32% w/w), Consumer Goods (+0.60% w/w), and Insurance sectors (+1.32% w/w) closed higher, while the Industrial Goods (-0.20% w/w) and Oil & Gas (-0.29% w/w) sectors closed lower. The week’s top gainers chart had – JOHNHOLT (+60.50% w/w), EUNISELL (+46.22% w/w), TANTALIZER (+33.93% w/w), SUNUASSUR (+32.04% w/w), and FLOURMILL (+22.89% w/w). For the week’s top decliners, we had – DAARCOMM (-12.12% w/w), OANDO (-10.44% w/w), VFDGROUP (-10.00% w/w), ABBEYBDS (-9.77% w/w), and ELLAHLAKES (-7.36% w/w).

Fixed Income: This week, system liquidity opened negative (₦60 billion), but ended the week positive (₦397 billion), following a coupon inflow of ₦143 billion on Friday. As a result, OPR declined by 5.86ppts to 26.05% w/w. During the week, the secondary market traded on a tepid note amid mixed sentiments, as investors mostly stayed on the sidelines, only cherry picking few instruments per time. At the end of the week, yield changes on benchmark instruments were observed as follows – 91-Day (-45bps w/w), 182-Day (-23bps w/w), and 364-Day bills (-46bps w/w). Then, the 2-year (+58bps w/w), 3-year (+11bps w/w), and 5-year (+6bps w/w) notes  inched higher w/w. Finally, the 10-year (+407bps w/w) note closed lower.

Currency: At the NAFEM, the Naira appreciated by ₦26.62 w/w to close the week at ₦1,652.25 per dollar.

Domestic Economy:

Nigeria plans to spend ₦47 trillion ($28.18 billion) for its 2025 budget, using an assumption of an oil price of $75 per barrel and a target production of 2 million barrels per day, the country’s budget minister said on Thursday. The budget includes a deficit of ₦13.8 trillion, or 3.87% of estimated GDP, Atiku Bagudu told reporters after a cabinet meeting in Abuja. The 2025 budget also includes a forecast exchange rate to the U.S. dollar at ₦1,400, stronger than its official closing rate of ₦1,655 on Thursday. While we are yet to see official breakdowns from the Budget Office, the spending plan is a 71% increase from the 2024 Budget proposal, while the 2025 revenue estimate of ₦34 trillion is 5 times the annualized retained revenues for 2024 (₦7 trillion).

Global: The Nasdaq and the S&P 500 were set for their worst session in over two weeks on Friday, after comments from Federal Reserve Chair Jerome Powell pointed to a slower pace of interest-rate cuts. All three major U.S. stock indexes were headed for weekly losses – the Dow 1.2%, the Nasdaq 2.9% and the S&P 500 2% – as market focus shifted from the presidential election to the state of the economy and potential inflation risks under a new administration. This alongside UK inflation fears impacted stocks in London which edged lower on Friday. For the week, the FTSE 100 slipped 0.1%, the FTSE 250 declined 0.2% and the AIM All-Share shed 1.0%. For the Euro area, European shares slipped on Friday, weighed down by disappointing earnings, concerns about the impact of U.S. President-elect Donald Trump’s policies on global economies and businesses and a jump in Treasury yields. The pan-European STOXX 600 index dropped 0.7% week-on-week, hitting a three-month low earlier this week. Finally, in Asia, we saw a red performance as well. The Shanghai Composite Index lost 0.04% during the week, The Nikkei 225 closed the week 0.02% lower, while the Hang Seng Index lost 0.041%.

What will shape markets in the coming week?

Equity market:  Overall, the market appears positioned for another positive session, driven by the banking space and mid-large cap names, though activity levels will be crucial to watch.

Fixed Income: While we witnessed an inflow today, it came against the backdrop of general low system liquidity. On Monday, the DMO will be holding a Bonds auction, which will further strain liquidity. Meanwhile, we expect stop rates to inch higher, following a higher October inflation print. For Monday, we also anticipate a quiet day, as investors stay on the sidelines in anticipation of the auction. Finally, we expect liquidity constraints and higher rates to colour trading activities for the rest of the week, moreso, in the bonds market.