Yesterday, Total released its 9M 2016 result, wherein revenues expanded 38.2% YoY to N220.2 billiondriven by a 37% and 48% YoY growth in petroleum and Lubricants sales. Gross margin was up by 2.8pps on a year ago basis to 14.5%, which, in addition to a trivial rise (1% YoY) in opex and an almost five-fold contraction in net finance cost to N232 million, drove PBT and PAT margins 4.6pps and 3.5pps higher YoY to 7.7% and 5.3% respectively. EPS of N34.26 is four-times that of 9M 15 (N8.16). To add, Total declared an interim dividend of N7 per share–implying a dividend yield of 2.4% at current price of N290. Combined interim dividend for 9M 16 now stands at N10 per share. Earnings are nearly in line with our estimate, though sales growth tracked lower than our estimate.
For Q3 16, sales stood at N74.7 billion –12.9% lower compared to the preceding quarter though 57.9% higher on a year ago basis. The slower sales growth during the period was largely on the back of a 15% QoQ decline in petroleum sales to N64.5 billion which we adduce to volumes decline. By our estimate, volumes were down 43.2% QoQ to 444.7 million litres –a significant decline than expected which wiped out the +50% increase in fuel prices during the period. Gross margin came in lower at 12.2% (-4.2pps QoQ) –petrol and lubricant margins were down 3.9pps and 5.9pps to 12.4% and 10.8% respectively. In our view, the declines in margins were largely hinged on FX pressures, with a more pronounced impact on the lubricant segment.
Further down, opex was tamer 6.4% QoQ (10.1% YoY) to N5.3 billion driven by S&D expenses which was down 21.3% QoQ. Other operating income came in three-times higher at N387 million, moderating the decline in EBIT (-53.4% QoQ). Net finance cost of N137 million compared to net finance income of N70 million in Q2 16, further shoved PBT and PAT to N4.0 billion and N2.7 billion –a marked decline of 55.3% and 55.8% on a quarter ago basis respectively. However, earnings (PBT, PAT) remained three-times higher YoY. Q3 16 EPS at N7.95 (9M 16: N34.26).
Total currently trades at P/E and 2016 P/E of 8.5x and 4.5x compared to peer average of 19.8x and 14.7x respectively. 9M 16 EPS and DPS of N34.26 and N10 are 76.5% and 34.3% of our FY 16E forecast of N44.8 and N29.1 respectively. Our FVE estimate of N372.98 is at a 28.6% premium to current price, we have a STRONG BUY rating on the stock.