With a strong net income of N20.6 billion posted by Total Energies Marketing Nigeria Plc in the first half of the 2024 financial year, analysts expect sustained growth in revenue in the second half of the year, banking on an increase in product supply from the Dangote Refinery when it commences production of petrol.
Background
TotalEnergies has been present in Nigeria for more than 60 years and employs today more than 1,800 people across different business segments. Nigeria is one of the main contributing countries to TotalEnergies’ hydrocarbon production with 219,000 boe/d produced in 2023.
TotalEnergies also operates an extensive distribution network which includes about 540 service stations in the country. In all its operations, TotalEnergies is particularly attentive to the socio-economic development of the country and is committed to working with local communities.
TotalEnergies is a global integrated energy company that produces and markets energies: oil and biofuels, natural gas and green gases, renewables and electricity. Its more than 100,000 employees are committed to providing as many people as possible with energy that is more reliable, more affordable and more sustainable. Active in about 120 countries, TotalEnergies places sustainability at the heart of its strategy, its projects and its operations.
Revenue growth to subsist on elevated energy prices
In H1’24, TOTAL reported a 100.8 percent YoY increase in its revenue as prices of petroleum products surged. According to the National Bureau of Statistics (NBS), energy prices were mostly higher in the review period, with prices of Premium Motor Spirit (PMS), Automotive Gas Oil, and Household Kerosene advancing by 37.4 percent, 79.3 percent, and 25.7 percent respectively.
Analysts at CardinalStone Research expect prices to remain elevated in H2 ’24 as foreign exchange volatility continues to impact the landing cost of imported petroleum products.
“Furthermore, we see latitude for foreign exchange gains in Q3 ’24 in line with the usual currency pressures between July and September, even though the CBN’s aggressive interventions may slightly limit potential pass through to income. Elsewhere, we expect the company to continue effectively leveraging its extensive network system to sustain income generation for the rest of the year.
“To buttress the above points, we note that the company had reported a 253.0% YoY surge in other income in H1’24 that was driven by higher foreign exchange gains (impact on trade, other receivables, and cash held) and increased network income (currently at 128.1% of our previous full-year estimate). The Major Energies Marketers Association of Nigeria (MEMAN) revealed that the landing cost of PMS, AGO and Jet fuel stood at N1,117/litre, N1,157/litre, and N1,127/ litre, respectively, in July 2024.”
Divestment
Mauritius-based Chappal Energies has acquired a minority share in TotalEnergies’s Nigerian onshore joint venture assets for $860 million.
The new purchase by Chappal Energies, a company registered in Mauritius in 2022, includes an interest in 15 licences producing mostly oil, with production netting Total of 14,000 barrels of oil equivalent per day in 2023. This deal includes three additional licenses that produce mostly gas and currently account for 40 percent of TotalEnergies’ Nigeria LNG gas supply.
SPDC JV is an unincorporated joint venture between Nigerian National Petroleum Corporation Ltd (55%), Shell Petroleum Development Company of Nigeria (30%, operator), TotalEnergies EP Nigeria (10%) and NAOC (5%), which holds 18 licenses in the Niger Delta.
TotalEnergies EP Nigeria also transferred to Chappal Energies its 10 percent participating interest in the 3 other licenses of SPDC JV which are producing mainly gas (OML 23, OML 28 and OML 77), while retaining full economic interest in these licenses which currently account for 40% of Nigeria LNG gas supply.
The transaction was concluded for a firm consideration of USD 860 million. Closing is subject to customary conditions, including regulatory approvals.
“TotalEnergies continues to actively manage its portfolio in Nigeria, in line with its strategy to focus on its oil offshore and gas assets. After the launch of the Ubeta gas development on OML58 license last month, this divestment of our interest in SPDC JV licenses allows us to focus our onshore Nigeria presence solely on the integrated gas value chain and is designed to ensure the continuity of feed gas supply to Nigeria LNG in the future”, said Nicolas Terraz, President Exploration & Production of TotalEnergies.
“Furthermore, we see latitude for foreign exchange gains in Q3 ’24 in line with the usual currency pressures between July and September, even though the CBN’s aggressive interventions may slightly limit potential pass through to income. Elsewhere, we expect the company to continue effectively leveraging its extensive network system to sustain income generation for the rest of the year”
Forecast
In line with Analyst’s FY ’24 forecast, Total Energies Marketing Nigeria Plc (TOTAL) reported a net income of N20.6 billion (+53.2% YoY) in its unaudited H1’24 financials.
“Going into H2’24, we expect sustained revenue growth due to the elevated prices of petroleum products and the strong demand across core product segments as the company continues to leverage its strong network infrastructure (sales to service stations). In addition, following President Bola Tinubu’s directive to the Nigerian National Petroleum Company Limited (NNPCL) to sell crude oil to Dangote Refinery and other upcoming refineries in Naira, we envisage an increase in product supply, improvement in cost profile, and a subsequent rise in margins for TOTAL. Hence, we have made adjustments to our forecasts and obtained a new 12-month target price (TP) of N587.50 (vs N537.32 previously). We retain a BUY recommendation on the ticker.”
Refining activity to ease cost pressures
As earlier reported, the Dangote Refinery commenced the distribution of diesel and aviation jet fuel to the domestic market in April 2024.
Experts had earlier anticipated PMS supply from the refinery by Q2’24 in line with guidance from the company. However, due to several factors—including low crude feedstock supply, the refinery has consistently been unable to meet set deadlines.
However, analysts are optimistic about a potential timeline of early Q4’24 for PMS production and supply into the local market, following the directive from President Tinubu to NNPC to begin to supply crude to local refineries directly in Naira.
With the new development, we expect TOTAL’s cost profile to begin to improve as local supply improves with cost savings. Consequently, we foresee modest improvements in gross, EBIT, and PBT margins to 12.7 percent, 6.7 percent, and 6.1 percent, respectively (vs 12.2%, 6.6% and 5.8% as of H1’24) for FY’24. “We expect a more pronounced impact on margins from FY’25E as the refineries ramp up capacity.”
Expected higher returns to shareholders
With the company’s net income of H1’24 already ahead of FY’23 numbers, it is expected that the company will at least maintain the previous year’s dividend payout ratio of 65.7 percent. This assumption suggests a 329.2 percent YoY increase in dividend per share to c.N82.29/share for FY’24E.
Valuation and rating
“Adjustments to the analyst’s model led to a new 12-month TP of N587.50 with an upside of 25.0% from TOTAL’s reference price of N470.40. “Currently, the counter is trading at EV/EBITDA and P/E multiples of 2.2x and 5.9x, respectively, which is at a discount to its MEA peer average of 8.9x and 12.7x. Hence, we retain a BUY recommendation on the counter based on our expectations of strong revenue growth supported by elevated petroleum product prices as well as cost-saving potential from the debut of locally refined PMS,” the company said.
Green flags
1. Rising energy prices
2. Gain in FX
3. Expected improved product supply
Red flag
1. Threat of global carbonization
2. Government policy inconsistency.
