Higher pricing drives turnover growth
Total recorded a 64% y/y growth in turnover, driven by a 63% y/y growth in sales of petroleum products, and a 67% y/y growth in sales from the lubricant segment. We attribute the broad-based growth across the company’s business segments to higher pricing in the year.
Costs pressures weigh on profitability
While sales revenue grew, cost of sales increased sharply by 67% y/y, driven by currency pressures on raw material pricing, amid increased competition among downstream players. A 66%y/y rise in the cost of lubricants, grease, and refined product inventory further highlights these cost pressures. Consequently, gross profit margin decreased to 11% (FY’23: 13%).
On the operating end, OPEX increased by 55% y/y, primarily due to higher administrative and transport expenses, with the latter rising due to higher energy prices. On the flipside, the company’s other income surged by 611% y/y, driven by a ₦25 billion writeback of provisions (for technical assistance no longer needed), and a slight increase in network income (including Bonjour shop, rent, vendor management fees, and other miscellaneous income). This contributed to a rise in EBIT margin to 6% (FY’23: 4%).
Now a game of volumes
With increased competition in the downstream market following deregulation, the battle for market share has intensified, as consumers become more price sensitive. Total has maintained a higher pricing strategy than its peers, which we believe may be constraining volume growth and putting downward pressure on margins. As a result, our outlook for margins in the new year remains cautious, given current market dynamics. Additionally, with the potential for oil prices to decline in the coming year—alongside local fuel prices, assuming minimal exchange rate volatility—fuel prices are likely to ease, leading to an expected revenue decline for the 2025 fiscal year.
What shaped the past week?
Equities: This week, the local market traded bullishly, rising by 0.87% w/w to close at 104,496.12 points. The Consumer Goods sector led the gainers charts, up by 4.01% w/w, driven by strong buy-interest in NB (+15.48% w/w) and NESTLE (+11.43% w/w). Similarly, renewed buying interest in WEMA (+10.10% w/w), JAIZBANK (+8.31% w/w), and STANBIC (+8.15% w/w) boosted the Banking sector index, which rose by 2.54% w/w. The Oil & Gas sector also saw gains, up by 0.97% w/w, driven by increases in ARADEL (+5.43% w/w) and ETERNA (+0.36% w/w). However, losses in NEIMETH (-14.52% w/w), LINKASSURE (-13.75% w/w), and AIICO (-10.00% w/w) weighed down the Insurance sector, falling 2.86% w/w.
Fixed Income: In the week, the FGN, through the DMO, conducted a bond auction. The DMO offered ₦450 billion and sold ₦607 billion across the three maturities on offer. The stop rates at the auction closed as follows: APR 2029 (reissuance) at 21.79%, FEB 2031 (reissuance) at 22.50%, and JAN 2035 (new issuance) at 22.60% (Previous: APR 2029: 21.14%, FEB 2031: 22.00%).
Due to system liquidity levels, the CBN held an OMO bills auction, offering ₦600 billion across the 347-Day and 361-Day maturities. At the close of the auction, total subscriptions amounted to ₦2,894.75 billion, with total sales coming in at ₦1,000 billion. The stop rates were set at 22.65% for the 347-Day bill and 22.50% for the 361-Day bill.
Meanwhile, in the secondary market, mixed sentiment was observed across the NTBs and Bonds markets. By the end of the week, yield changes on benchmark instruments were as follows: 91-Day (+39bps w/w), 182-Day (-1408bps w/w), and 364-Day bills (-377bps w/w). Additionally, the 2-year (+41bps w/w), 3-year (+260bps w/w), and 10-year (+334bps w/w) notes inched higher w/w. Finally, the 20-year (+85bps w/w) note closed higher.
Currency: At the NAFEM, the naira appreciated for the fourth consecutive day on Friday, closing the week at ₦1,474.78 per dollar.
Domestic Economy: The Nigerian naira appreciated by 3.68% against the U.S. dollar, gaining ₦56.42 and closing the week at ₦1,474.78. In the parallel market, it strengthened further to ₦1,610/$1, up from ₦1,630/$1. This gain follows a significant drop in oil imports, now at their lowest in eight years, largely due to increased production at the Dangote refinery. Recent reports show that petrol imports into Nigeria have decreased to about 110,000 bpd, down from over 200,000 bpd in 2017. The shift is expected to boost Nigeria’s forex reserves and help stabilize the naira, although global oil price fluctuations and other economic factors remain potential market influences.
Global: Global markets mostly rose on Friday, following gains on Wall Street driven by strong profit reports from Tesla, IBM, and Meta Platforms. The S&P 500 opened 0.47% higher at 6,099.75 points, while the Dow Jones Industrial Average increased by 0.04%, reaching 44,901.84 points. The tech-heavy Nasdaq Composite increased by 1.23%, at 19,924.31 points. U.S. stocks also received a boost from a relatively calm bond market, where rising Treasury yields had been putting pressure on markets in recent months. Treasury yields held steady after an inflation update, aligned with economists’ expectations. The 10-year Treasury yield slightly decreased to 4.51% from 4.52%.
Meanwhile, European markets opened higher after the European Central Bank cut its key interest rate by a quarter-point to 2.75% on Thursday. France’s CAC 40 gained 0.2% in early trading to 7,958.35 ppts, while Germany’s DAX remained flat at 7,958.35 ppts. Britain’s FTSE 100 rose 0.2% to 8,667.17 ppts.
In Asia, Tokyo’s Nikkei 225 index edged up 0.2% to 39,572.49 ppts. Japan’s core inflation rate for January rose to 2.5%, exceeding the central bank’s 2% target, which could lead to further interest rate hikes. South Korea’s Kospi declined 0.8% to 2,517.37 ppts, while markets in Hong Kong and Shanghai were closed for the Lunar New Year holidays. In other markets, Australia’s S&P/ASX 200 advanced by 0.5%, closing at 8,532.30 ppts.
What will shape markets in the coming week?
Equity market: With key financials yet to report, investor focus shifts to banking earnings, which could dictate market sentiment in the coming week.
Fixed Income: We anticipate that OMO sales from Friday’s auction will be recorded in the system next week, affecting liquidity levels and shaping trading at the start of the week. Additionally, the NTBs auction on Wednesday will guide market activity for the remainder of the week.
