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Borrowing costs drag TOTAL to 40-year nadir

TOTAL failed to achieve positive revenue growth in its petroleum products segment.



Total Nigeria records loss for the first nine months of 2019

Lubricant surge fails to mask waning topline growth

For the second consecutive quarter, TOTAL failed to achieve positive revenue growth in its petroleum products segment. The 9M:2019 scorecard bared a 2.24% Y-o-Y decline in gross revenue (NGN221.84 billion), with Q3:2019 emerging the major culprit. Quarterly revenue printed at NGN71.01 billion (+0.51% Y-o-Y), the lowest this year, only propped up by a 18.25% (Y-o-Y) uptick in lubricant sales (+NGN13.22 billion). However, Q-o-Q, lube sales shed 2.15%. Compared to 9M:2018, white product sales came in 2.83% lower at NGN57.79 billion.

The drop-off was even more pronounced on a Q-o-Q basis (-14.17%). TOTAL is finally reducing the exposure of its topline to bulk sales; on a Y-o-Y basis, there was a 22.50% decline in contribution from this segment (NGN14.91 billion), and -3.27% between Q2 and Q3. With the protracted delay in passage of the PIGB, the expected hike in price of PMS did not eventually materialize, and intensified competition means industry players have to settle for lower revenues this year.  On the back of this, our outlook on 2019FY revenue is now significantly moderated – a Y-o-Y decline of 4.29% (NGN294.78bn) even while we envisage further expansion in the lubricant business.

[READ MORE: Oil exploration breakthrough in Gongola opens up new frontiers]

Net Margin Pressured by “Management Fees” and Finance Costs

In Q3:2019, TOTAL’s Cost-to-Sales (CtS) ratio showed some improvement relative to preceding quarters. The 88.22% recorded (Q1: 89.49%, Q2: 88.29%) means gross margin came in slightly higher at 11.78%, albeit lower in absolute terms (NGN8.37 billion) as a result of softer revenue. Overall 9M:2019 gross margin printed at 11.31%, with gross profit at NGN25.10 billion (9M:2018: 13.65%, NGN30.97 billion). This is justified by the fact that landing costs remain elevated on the back of higher freight costs, despite lower oil prices. Operating Expenses constituted a major drag on earnings –up 15.60% to NGN6.86bn for Q3.

In just 9 months, OPEX is up 16.46% to NGN20.72 billion, due to unwieldy administrative costs (primarily Staff Costs and “Technical Assistance & Management Fees”). While we understand that TOTAL Nigeria pays for Technical Assistance from it French parent company, TOTAL SÁ, a key sticking point is how this cost item logged a humongous 97.92% upsurge (+NGN1.02 billion) in a single quarter. Finance costs have been a snag for most of the year. In 9M, TOTAL incurred NGN6.15bn on NGN53.87bn of borrowings (+103.34% Y-o-Y), principally bank overdrafts worth NGN45.97bn for the network segment. Pre-tax loss settled at -NGN0.12 billion (9M:2018: NGN11.44 billion). Net Income also declined by 102.67%, pitching in at -NGN0.20 billion (EPS: -NGN0.60 vs. NGN22.58 previously).

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Earnings Quality Takes a Further Hit

In Q3, TOTAL recorded a 11.09% (+NGN6.37 billion) uptick in its receivables balance to NGN63.84bn, which calls to question the suitability of its credit policies. Operating Cashflow steeped further into negative territory (-NGN7.38 billion vs. -NGN5.19 billion in 9M:2018) on the back of a 14.48% surge in inventories, and the increasingly uncontrollable receivables balance.

[READ ALSO: MOBIL’s tepid recovery stirs optimism]

Outlook and Recommendation

For the first time in its history, TOTAL might be declaring a full-year loss. What is even more excruciating is that TOTAL will also fail to pay a dividend for the first time in its 40-year listing on the NSE, except the company decides to dip into retained earnings (failure to declare an interim dividend is already clear evidence of this). Earnings is expected to come in much lower at -NGN0.36 billion, (-104.54% Y-o-Y), and EPS at -NGN1.07. Due to the loss, our 2019FY target price of NGN100.48 was computed with reference to an EV/EBITDA ratio of 7.50x and full-year EBITDA of NGN11.3bn. We recommend a SELL.

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Hospitality & Travel

34.5% decline in aviation jet fuel daily sufficiency, a worry for airline companies

Decline in daily aviation fuel sufficiency worry airlines as air passengers are expected to increase in the festive season.



Airline operators will pay $3,500 per passenger if they break protocols – PTF COVID-19, Global Air passenger slump to persists til 2023- Moody’s 2023- Moody’s

The 34.5% decline in the daily sufficiency of aviation jet fuel may constitute a worry for airline companies in the country.

Considering that there is usually more people traveling due to the traditional Christmas and New Year festivities, resulting in increased flight patronage, the current total stock level appears to be low.

The observation is according to the daily petroleum products days sufficiency (total stock level data) compiled by the Petroleum Products Pricing Regulatory Agency (PPPRA).

In line with the data available on the PPPRA website,

  • The current total stock level of Aviation Turbine Kerosene (ATK), also known as aviation jet fuel or Jet-A1, stands at 89.04 million litres.
  • Eleven days earlier, the total stock level was 135.83 million litres – indicating a 34.5% decline.
  • Before now and since the start of the 2020, total stock level has been relatively unstable, with the recent highest total stock level of 187.40 million litres recorded on the 2nd of October 2020 – indicating about 60 days sufficiency; and the lowest 54.96 million litres was recorded on the 17th of July – about 18 days sufficiency.
  • As at the time the latest report was released, 27th November 2020, the total ATK stock was land-based stock.
  • Checks indicate there has been no receipt of ATK from the 19th of November, after the last receipt of 5.56 million litres on the 18th of November.

What they are saying

Speaking to Nairametrics regarding the decline, the MD/CEO of Jushad Oil and Gas Ltd, Mr. Bosun Paseda, submitted that the decline is due to the continuous increase in the exchange rate.

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He said, “The exchange rate is very high and unstable. You will discover that importers do not have access to the CBN rate and have to make recourse to the parallel market. The landing cost is currently higher than the rate we sell at the airport. That’s why marketers do not want to bring the product.

“Scarcity is likely to set in, but the reason there is no scarcity yet is because people are not really flying. If it stays the same, then scarcity may set in, when travel increases.”

Responding to the question on whether the decline in stock has affected the price of the product, Mr Paseda noted that it has not really affected the price of the product as consumption is currently low.

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What you should know

Nairametrics recently reported that oil markets yearned for airlines to resume operations following several months of not operating due to the Covid-19 pandemic travel restrictions.

  • Aside from the loss of revenues to airline companies, the call was necessary considering that Jet fuel demand averages about 8 million barrels per day worldwide – indicating that oil companies were also not recording enough revenues.
  • As a result of the pandemic, the International Energy Agency expects demand for Jet fuel and Kerosene to fall by 2.1 million bpd on average in 2020. This has, however, improved following lifting of travel restrictions in many countries.

Now that flights have resumed operations, it appears airline companies in the country may be in line to face another hurdle before the year runs out. The likelihood of facing this hurdle is highly contingent on receipt of ATK used in powering flights and increased travels. If things remain the same in terms of daily sufficiency of ATK needed to power their flights, scarcity may set in.

  • Remember that the lowest ATK of 54.96 million litres – about 18 days sufficiency, recorded on the 17th of July, was during travel restrictions. The decline in that period didn’t create concerns and it picked up days later.

What this means

  • With the national average daily consumption of ATK three million litres, this depicts that current total stock level of 89.04 million litres will only sustain for about 30 days, all things being equal.
  • Even though it appears this stock level is good, the steady decline in the stock level as illustrated in the graph above raises immediate concerns.
  • Also, one may conclude that receipt of ATK has stalled in recent days, having received only a total of 12.68 million litres in the last two weeks, since 12th November. This observation appears to denote that should the product receipt trend continue, scarcity may occur in the near future.

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Economy & Politics

Governors to meet on Wednesday over rising insecurity

The governors of the 36 States of the federation will hold an emergency virtual meeting to discuss growing insecurity in the country.



Oil Price Crash: Governors to meet on budgetary and economic issues, Insecurity: Governors to meet on Wednesday over rising insecurity

The Nigerian Governors Forum (NGF) has announced that the Governors of the 36 States will hold an emergency virtual meeting to discuss the recent killings and kidnappings by terrorist groups, and agree on a new national security plan to secure the lives of citizens.

This was disclosed in a statement by Head, Media and Public Affairs of the NGF, Mr Abdulrazaque Bello-Barkindo, on Monday in Abuja.

(READ MORE: Labour leaders reportedly walk-out on Ministers over fuel, electricity price hike)

The NGF disclosed in its statement that the Governors would also receive updates on the events following the disbandment of the SARS alongside the rising insecurity.

Other issues that will be discussed by the Governors include:

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  • CACOVID funding palliatives and updates across the states.
  • Joint meetings between the CBN and Kaduna State Governor, Nasir el-Rufai, on accessing pension funds to finance infrastructure development.
  • Updates on the ASUU strike. Issues related to Stamp Duty and the Water Resources Bill will also be discussed at the meeting.

What you should know 

There has been a rise in reported cases of kidnappings and killings by terrorists groups and bandits, especially in Northern Nigeria.

Nairametrics reported earlier that President Muhammadu Buhari had condemned the killing of farmers by Boko Haram on Saturday. The President added that the Federal Government had given the armed forces support to tackle insecurity in the country.

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Covid-19: FG to reduce fatalities by strengthening capacity – Health Minister

The Minister said that the ministry plans to increase its capacity to battle the disease through personnel supervision.



Minster for health, FG ignores travel ban calls despite Uganda, US, others move against coronavirus, FG reports 10 new cases of COVID-19, COVID-19: FG to inaugurate 18-man vaccine task team

The Federal Ministry of Health (FMOH) has announced plans to reduce case fatalities of the Covid-19 pandemic by focusing on improving the capability to manage the virus.

This was disclosed by the Minister of Health, Dr. Osagie Ehanire, during the daily Joint National Briefing of the Presidential Task Force (PTF) on Covid-19 in Abuja.

The Minister said that the ministry plans to increase its capacity to battle the disease through personnel supervision.

He said, “We hope to reduce case fatalities by strengthening our capacity to manage cases, but it is only possible if persons test themselves early. All cases, whether home-based or institutional are to be supervised by medical personnel. This is particularly  important, given the threat posed by the spiralling rate of infection in countries with which Nigeria has strong political, business, social, and family relations.”

(READ MORE: FG may stop interstate and inter-town travels)

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He urged Nigerians to cut off travel to high-risk countries, as the travel rate determines the risk the ministry could contain with.

“There is a correspondingly high volume of travel between Nigeria and those countries, which is what also determines the risk. I also urge all Nigerians to cut off all travels, especially international travels, most especially travels to high risk countries, except it is very urgent.”

He stated that it might take Nigeria a while before securing the vaccines, even though the country had started the process of securing access to a vaccine.

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“Although we are positioning our country for access to the Covid-19 vaccine, it may still take a while for countries to access it and for all citizens to be vaccinated. It is, therefore, more realistic that we adopt preventive measures which have proven to be successful in controlling the pandemic,” Ehanire added.

What you should know: Nairametrics reported in October that Dr. Ehanire said Nigeria increased its daily testing capacity for Covid-19 to over 3,500/day.

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