Total Energies Marketing Nigeria Plc, one of the downstream oil and gas players of the NGX, is off to a rough start in 2025.
After posting a record pre-tax profit of N42 billion and a post-tax profit of N27.5 billion last year, the highest in five years, its Q1 2025 results tell a different story.
Pre-tax profit plunged by 93% to N1.12 billion, while the company slipped into a post-tax loss of N120 million, compared to a N11.4 billion post-tax profit in Q1 2024.
This poor bottom-line performance came despite the lower cost of sales, showing that revenue decline and rising expenses were the real culprits.
Revenue fell 18% to N221.62 billion, driven by a 28.9% drop in white product sales; namely Premium Motor Spirit (PMS), Automotive Gas Oil (AGO), and Aviation Turbine Kerosene (ATK), which typically make up over 70% of Total Energies’ top line.
The Q1 revenue decline can be attributed to the challenging operating environment shaped by price distortions and increased domestic refining capacity from players like Dangote Refinery.
However, while these macroeconomic shifts added pressure, peer companies MRS Oil and Eterna recorded revenue growth, with MRS jumping 211% to N246.53 billion and Eterna rising 8% to N73 billion for the same period.
This suggests that market conditions alone may not fully explain Total’s revenue slump, raising possible concerns around market share loss or weaker pricing power.
Total inventory dropped by 24%. Yet, trade and other receivables rose by 9.4%, and operating cash flow fell by 76% to N6.1 billion, pointing to pressure from slower collections or more credit sales.
But there was a bright spot. Lubricant sales rose by 29% to N66.1 billion, increasing their contribution to revenue from 19% to 30%. This suggests that Total is consciously pivoting toward a higher-margin product. Lubricants offered a higher gross profit margin at 17.77% compared to the white products’ margin of 4.33%
But the scale of the decline in its core fuel business is too large to ignore. Gross profit dropped by 30% to N24.51 billion, and gross margin shrank to just 11%.
At the same time, Total Energies’ running costs went up by 34%, and the amount it paid on loans and interest almost doubled, mainly because interest on bank drafts shot up by 270%.
This puts even more pressure on profits. As a result, the company’s ability to pay interest from its earnings weakened sharply, with its interest coverage ratio dropping from 10.22 times to just 1.03 times, a sign that it’s barely earning enough to cover its interest payments.
Investor takeaway
Total Energies’ Q1 2025 results raise caution flags. While the company is clearly pivoting toward higher-margin lubricants, this shift is not yet large enough to offset the sharp contraction in its core white product business, which remains the backbone of revenue.
The declining operating cash flow, rising receivables, and high finance costs point to growing earnings quality concerns and possible liquidity strain, not just market-driven pressure, but also potential operational and cost management issues.
While industry-wide margin compression is real, Total’s deeper profit erosion and higher leverage exposure suggest it may be underperforming relative to peers.
At 15x P/E higher than the sector average of 11x, Total Energies stock is still priced for strength. However, its share price has gained just 1% year-to-date, a stark contrast to the impressive 81% rally seen in 2024.
While it offers a respectable dividend yield of 6.68%, the muted price performance suggests waning investor confidence. Unless earnings quality improves and core operations stabilize, that valuation premium may be difficult to justify.
For now, a HOLD stance is prudent. Investors should watch for:
- Signs of white product recovery or market share regain
- Tighter cost control, particularly on finance and operating expenses
- Improved cash flow generation, not just topline growth
Until then, Total may find it hard to justify its valuation premium.
